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Section 244A: All about Interest on Income-tax Refund

section-244a-all-about-interest-on-income-tax-refund


Section 244A: All about Interest on Income-tax Refund: An assessee is entitled to receive interest on the amount of income tax refund which he has claimed in the income-tax return. Where an assessee has furnished his return of income and total taxes paid is more than the tax liability of the assessee and the assessee claim the excess taxes paid as a refund and the same is found due to him, the income tax law provides for payment of interest on the amount of income-tax refund to the assessee. This article discusses the relevant provisions of the Income Tax Act, 1961 (“Act”) with relevant Judicial Decisions/landmark Case Laws on Interest u/s 244A.

    Income Tax Refund Provisions


    The provisions related to interest on the income tax refund is contained in section 244A of the Act.


    The provisions of section 244A in the Income Tax Act, 1961 were introduced by the Direct Tax Laws Act, 1987 (as amended by Direct Tax Laws (Amendment) Act, 1989) w.e.f. 01.04.1989 and were made applicable from Assessment Year 1989-90. The provisions of section 214 relating to interest payable by the Government on the excess amount of advance tax paid by the assessee have been replaced, with effect from the assessment year 1989-90, by the provisions of a new section 244A, which provides for interest payable by the Government on all refunds. 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 and also to simplify the provisions in this regard, section 244A was inserted in the statue to ensure that the assessee is duly compensated by the Government by way of payment of interest for monies legitimately belonging to the assessee and wrongfully retained by the Government. 


    Where any amount of refund becomes due to the assessee, such amount of income tax refund is liable to be refunded to the assessee with interest as per the following provisions of the Act-


    Interest on Refund of Advance Tax/TDS/TCS


    1. Refund of excess amount of tax due to the assessee on account of advance payment of tax or TDS/TCS: Where the refund of tax is due to the assessee out of any tax collected at source under section 206C or paid by way of advance tax or treated as paid under section 199 (credit of TDS), during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of 0.5 per cent for every month or part of a month comprised in the period-


    (a) Where the assessee has furnished the return of income within the due date of return specified in section 139(1): Interest is payable @ 0.5% p.m. or part thereof from the 1st day of April of the assessment year to the date on which the refund is granted. [Section 244A(1)(a)(i)]


    (b)  Where the assessee has not furnished the return of income after the due date of return specified in section 139(1): Interest is payable @ 0.5% p.m. or part thereof from the date of furnishing of return of income to the date on which the refund is granted. [Section 244A(1)(a)(ii)]


    This credit of TDs under section 199 is claiming the refund of TDS by the deductee by filing his income-tax return.


    Under section 244A(1)(a), an assessee is entitled to receive interest on refund out of any tax collected at source, tax deducted at source or advance tax paid from the 1st day of April of the assessment year to the date on which the refund is granted. 


    Clause (b) of section 244A(1) provides that in case the refund is out of any other amount, interest shall be calculated for the period from the date of payment of the tax or penalty to the date on which the refund is granted.


    Accordingly, the assessee is entitled to receive interest on amounts paid either by way of self-assessment tax or in pursuance of a notice of demand.


    The Explanation below the aforesaid Clause (b) of section 244A(1) reads as under: 


    Explanation — For the purpose 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 u/s. 156 is paid in excess of such demand.


    The aforesaid Explanation instead of clarifying the meaning of ‘date of payment of tax’ speaks of the amount being paid in excess of the amount demanded. In other words, it refers to tax paid after the demand notice u/s 156 is issued. If a tax or penalty is paid in pursuance to a notice of demand, if paid in excess of the demand, is entitled to interest u/s 244A and no other payment is eligible to the said interest.


    The Explanation only clarifies the date of payment in case of taxes paid under a demand notice or payment of penalty. It does not restrict the scope of operation of the clause (b) to the refund any other amount under the Income Tax Act.


    The Explanation under clause (b) of Section 244 A (1) of the Act serves to clarify the expression “the dates of payment of the tax or penalty.” It is not intended to and in fact does not whittle down the ambit of Section 244 A (1) (b) of the Act. [Preeti Aggarwala vs. CIT [W.P.(C) 1011/2016]-Delhi HC]



    Interest on Refund of Self-Assessment Tax


    2. Refund of self-assessment tax paid u/s 140A: Interest is payable @ 0.5% p.m. or part thereof from the date of furnishing of return of income or payment of tax, whichever is later, to the date on which the refund is granted. [Section 244A(1)(aa)]


    Prior to insertion of section 244(1)(aa), it was a burning question whether interest on refund arising due to excess payment of self-assessment tax u/s 140A is subject to interest under section 244A or not, was a subject matter of litigation.


    On this issue, Hon’ble Supreme Court in the case of Engineers India Ltd. vs. CIT reported in (2017) 397 ITR 16 observed that where the Delhi High Court in the case of CIT vs. Engineers India Limited (ITA No. 300/2012) on the issue of entitlement of assessee to get interest under section 244A on refund of self-assessment tax which was voluntarily paid under section 140A, did not agree with the earlier view expressed by Co-ordinate Bench of the same High Court in CIT v. Sutlej Industries Ltd. (2010) 325 ITR 337 (Del), though subsequently in another case titled as Sutlej Industries Ltd. v. CIT ITA Nos. 493 of 2003 & 120 of 2004, dated 6-1-2016 the High Court referred the identical matter to Larger Bench, and held that no interest under section 244A would be allowed to assessee on refund of such tax. The Supreme Court setting aside the decision of High Court in assessee's case (2015) 373 ITR 377 (Del), remanded appeal back to High Court for fresh decision by a Larger Bench. 


    A favourable view was taken in the case of Stock Holding Corporation of India Ltd. v. CIT (2015) 373 ITR 282 (Bom). Similar views were also taken in the case of CIT vs. Birla Corporation Limited in ITA No.526 of 2004 by the Calcutta High Court.


    In the case of DCIT v. Savita Oil Technologies Ltd. in ITA. No. 7620/Mum/2016 decided on 24 April, 2019 almost all the important judgements on the issue of interest on refund of self assessment tax is discussed.


    To put an end to the dispute, the Finance Act, 2016 has expressly provided for payment of interest on income-tax refund arising from the excess payment of self-assessment tax u/s 140A. In the interest of fairness and equity, section 244A is amended to provide that an assessee shall be eligible to interest on refund of self-assessment tax for the period beginning from the date of payment of tax or filing of return, whichever is later, to the date on which the refund is granted. For the purpose of determining the order of adjustment of payments received against the taxes due, the prepaid taxes i.e. the TDS, TCS and advance tax shall be adjusted first.


    When interest under section 244A on the income tax refund is not payable


    Exceptions: When interest under section 244A on the income tax refund is not payable-


    In the above two mentioned cases, if the amount of income tax refund due to the assessee as determined under section 143(1) or on regular assessment [u/s 143(3) or u/s 144] is less than 10 per cent of the tax liability of the assessee, then no interest under section 244A on the income tax refund shall be payable.


    Interest on Refund of any other tax and Penalty


    3. Refund of any other tax amount or penalty: Where any other amount tax or penalty paid is found to be payable to the assessee then interest is payable at the rate of 0.5% p.m. or part thereof from the date(s) of payment of such tax or penalty to the date on which the refund is granted. [Section 244A(1)(b)]


    This will cover a case where tax is paid as per demand notice but subsequently, the demand is vacated by an appeal order or rectification etc. and the payment of such tax is refundable to the assessee.


    Additional Interest on the amount of refund


    3. Additional interest on the amount of refund: In a case where a refund arises as a result of giving effect to an order under -

    section 250 or [Order of CIT(Appeals)]

    section 254 or [Order of ITAT]

    section 260 or [Order of a High Court]

    section 262 or [Order of the Supreme Court]

    section 263 or [Revision of orders prejudicial to revenue by CIT]

    section 264, [Revision of other orders by CIT]

    wholly or partly, the assessee shall be entitled to receive, in addition to the interest payable as mentioned above, additional interest on such amount of refund if there is a delay in giving effect order calculated at the rate of 3 per cent per annum, for the period beginning from the date following the date of expiry of the time allowed under sub-section (5) of section 153 to the date on which the refund is granted. This does not cover an order of making a fresh assessment or reassessment. [Section 244A(1A)]


    This sub-section (1A) provides that where a refund arises out of appeal effect being delayed beyond the time prescribed under sub-section (5) of section 153, the assessee shall be entitled to receive, in addition to the interest payable under sub-section (1) of section 244A, additional interest on such refund amount calculated at the rate of 3 per cent per annum, for the period beginning from the date following the date of expiry of the time allowed under section 153(5) to the date on which the refund is granted. In cases where an extension is granted by the Principal Commissioner or Commissioner by invoking the proviso to section 153(5), the period of additional interest, if any, shall begin from the expiry of such extended period.


    Section 153(5) provides for giving effect to an order under section 250 or section 254 or section 260 or section 262 or section 263 or section 264 by the Assessing Officer, wholly or partly, otherwise than by making a fresh assessment or reassessment, within a period of 3 months from the end of the month in which order under section 250 or section 254 or section 260 or section 262 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be, or the order under section 263 or section 264 is passed by the Principal Commissioner or Commissioner.

     

    It is provided that where it is not possible for the Assessing Officer to give effect to such order within the aforesaid period, for reasons beyond his control, the Principal Commissioner or Commissioner on receipt of such request in writing from the Assessing Officer if satisfied, may allow an additional period of six months to give effect to the order:

     

    It is further provided that where an order under section 250 or section 254 or section 260 or section 262 or section 263 or section 264 requires verification of any issue by way of submission of any document by the assessee or any other person or where an opportunity of being heard is to be provided to the assessee, the order giving effect to the said order under section 250 or section 254 or section 260 or section 262 or section 263 or section 264 shall be made within the time specified in section 153(3).


    Interest on Refund of TDS


    4. Interest on refund of TDS: Where a refund of any amount becomes due to the deductor in respect of any amount paid to the credit of the Central Government under Chapter XVII-B, such deductor shall be entitled to receive, in addition to the said amount, simple interest thereon calculated at the rate of 0.5% per cent for every month or part of a month comprised in the period, from the date on which—

    (a) claim for refund is made in the prescribed form, or

    (b) tax is paid, where refund arises on account of giving effect to an order under section 250 or section 254 or section 260 or section 262,

    to the date on which the refund is granted. [Section 244A(1B)]


    Section 244A(1B) related to refund of TDS was inserted by Finance Act, 2017. Prior to insertion, section 244A of the Act provided that an assessee is entitled to receive interest on refund arising out of excess payment of advance tax, tax deducted or collected at source, etc. No such provision was there to claim the refund of excess TDS paid.


    Sub-section (1B) provides that where a refund of any amount becomes due to the deductor, such person shall be entitled to receive, in addition to the refund, simple interest on such refund, calculated at the rate of 0.5 per cent for every month or part of a month comprised in the period, from the date on which claim for refund is made in the prescribed form or in case of an order passed in appeal, from the date on which the tax is paid to the date on which refund is granted. It is also provided that the interest shall not be allowed for the period for which the delay in the proceedings resulting in the refund is attributable to the deductor.


    The Form prescribed for filing claims for TDS refund is Form No. 26B and the same needs to be filed online at www.tdscpc.gov.in portal.


    Read Also: Refund of TDS to Deductors/Buyers


    In this context, it should be noted that Income Tax Act was amended by Finance (No. 2) Act, 2009 and section 200A were inserted to provide for the processing of statements of tax deducted at source to determine the amount of TDS payable by or refundable to the deductor. However, there was no provision to pay interest on the refund of such TDS amount. Section 200A was made effective from 01.04.2010.


    The Madhya Pradesh High Court in the case of Universal Cables Ltd. v. CIT [2010] 191 Taxman 370 (MP) [M.A.I.T. No. 55 of 2003 decided on June 25, 2009] held that no interest under section 244A is payable on the amount of refund of TDS as assessee was not liable to deduct TDS and he did so on its own erroneous impression. This decision was overruled by the Hon’ble Supreme Court in Civil Appeal No. 3826 of 2012 following the UOI vs. Tata Chemicals 363 ITR 658 (SC).


    In the Tata Chemicals case (supra), their Lordships have categorically held that-


    (i) A “tax refund” is a refund of taxes when the tax liability is less than the tax paid. When the said amount is refunded it should carry interest in the matter of course. As held by the Courts while awarding interest, it is a kind of compensation of use and retention of the money collected unauthorizedly by the Department. When the collection is illegal, there is a corresponding obligation on the revenue to refund such amount with interest inasmuch as they have retained and enjoyed the money deposited. Even the Department has understood the object behind insertion of Section 244A, as that, an assessee is entitled to payment of interest for money remaining with the Government which would be refunded. There is no reason to restrict the same to an assessee only without extending the similar benefit to a deductor who has deducted tax at source and deposited the same before remitting the amount payable to a non-resident/ foreign company;


    (ii) Providing for payment of interest in case of refund of amounts paid as tax or deemed tax or advance tax is a method now statutorily adopted by fiscal legislation to ensure that the aforesaid amount of tax which has been duly paid in prescribed time and provisions in that behalf form part of the recovery machinery provided in a taxing Statute. Refund due and payable to the assessee is debt-owed and payable by the Revenue. The Government, there being no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, cannot shrug off its apparent obligation to reimburse the deductors’ lawful monies with the accrued interest for the period of undue retention of such monies. The State having received the money without right, and having retained and used it, is bound to make the party good, just as an individual would be under like circumstances. The obligation to refund money received and retained without right implies and carries with it the right to interest. Whenever money has been received by a party which ex ae quo et bono ought to be refunded, the right to interest follows, as a matter of course;

     

    (iii) The said interest has to be calculated from the date of payment of such tax.


    Way back in 1998, CBDT vide Circular No. 769 dated 6-8-1998 prescribed the procedure for granting the refund of tax deducted at source under section 195. Then vide Circular No. 790, dated  20-4-2000 CBDT stated that since the TDS amount paid into the Government account is not a 'tax', no interest under section 244A is admissible on refunds to be granted in accordance with this Circular or on the refunds already granted in accordance with Circular No. 769.


    Finally, following the decision of the Hon’ble Supreme Court in the Tata Chemicals case (supra), CBDT issued a Circular No. 11/2016 dated 27.04.2016  to state that refund of tax deposited under section 195 of the Act shall be liable for interest under section 244A from the date of payment of tax.


    It should be noted that all these Circulars were referring to TDS deposited under section 195 of the Act. This Circular of 2016 was in force till 31.03.2017 since section 244A(1B) was effective from 01.04.2017. It is further noted that section 244A(1B) covers all types of refund of TDS whether deposited u/s 195 or under any other section.


    Rate of interest on income-tax refund and refund of TDS


    5. Rate of interest on income-tax refund and refund of TDS: For each type of refund, the provisions prescribed for payment of interest at the rate of 0.5% per month or any part thereof. In other words, even a single day of the month shall be treated as a full month.


    Changes in the historic rate of interest on the amount of refund under section 244A


    Period

    Rate of Interest specified u/s 244A

    01.04.1989 to 30.09.1991

    1.50% p.m.

    01.10.1991 to 31.05.2001

    1.00% p.m.

    01.06.2001 to 31.05.2002

    0.75% p.m.

    01.06.2002 to 07.09.2003

    ⅔% p.m.

    08.09.2003 to till date

    0.50% p.m.


    It should be noted that the Act provides for payment of simple interest. Thus there cannot be any compounding of interest payments under section 244A.


    Exception: Exception is provided for the additional interest which is payable due to delay in giving appeal effect order by the assessing officer where the rate of interest is prescribed at the rate of 3 per cent per annum.

    Rule 119A prescribes the Procedure to be followed in calculating interest under the provisions of the Act. The same shall also apply in the case of calculating interest u/s 244A.

     

    In calculating the interest payable by the assessee or the interest payable by the Central Government to the assessee under any provision of the Act-

     

    (a) where interest is to be calculated on annual basis, the period for which such interest is to be calculated shall be rounded off to a whole month or months and for this purpose any fraction of a month shall be ignored; and the period so rounded off shall be deemed to be the period in respect of which the interest is to be calculated;

     

    (b) where the interest is to be calculated for every month or part of a month comprised in a period, any fraction of a month shall be deemed to be a full month and the interest shall be so calculated;

     

    (c) the amount of tax, penalty or other sum in respect of which such interest is to be calculated shall be rounded off to the nearest multiple of Rs. 100 and for this purpose any fraction of Rs. 100 shall be ignored and the amount so rounded off shall be deemed to be the amount in respect of which the interest is to be calculated.


    Period of delay attributable to the assessee or the deductor


    6. Period of delay attributable to the assessee or the deductor to be excluded: If any proceeding is going on against an assessee/deductor and at the end or conclusion of the proceeding any refund amount is due to the assessee/deductor and the proceeding was delayed due to the fault of the assessee/deductor then the period of the delay so attributable to the assessee/deductor shall be excluded from the period for which interest is payable under section 244A(1)/(1A)/(1B).


    The expression "proceeding" referred to in sub-section (2) of section 244A, more reasonably, would mean any proceeding as a result of which refund has become due. Viewed from the aforesaid perspective the expression "proceeding" in sub-section (2) may take within its ambit an appeal proceeding consequential to which refund may have become due. [CIT vs. Assam Roofing Ltd. (2011) 330 ITR 87 (Gau.-HC)]


    Where any question arises as to the period to be excluded, it shall be decided by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner whose decision thereon shall be final. [Section 244A(2)]


    The period to be excluded from the computation of period for allowability of interest has to be determined by the Pr. CCIT/CCIT or Pr. CIT/CIT and not by the Assessing Officer.


    Since the Assessing Officer also has not referred the matter to the Chief Commissioner or CIT where any question arises as to the period to be excluded, the action of the Assessing Officer in excluding a certain period is also not acceptable. [ACIT vs. ACC Limited (ITA Nos. 6262 & 6263/Mum/2010) (Mum-Trib.)]

     

    In the present case the AO excluded the period at his own while processing the claim of the assessee for refund and interest thereon payable u/s 244A(1) of the Act. Under the express provisions of sec. 244A(2) of the Act the AO could not do so as it was outside of his jurisdiction and the question of exclusion of any period for the purpose of grant of interest u/s 244A(1) of the Act was necessarily and mandatorily to be decided either by the Chief Commissioner of Income Tax or Commissioner of Income Tax. Therefore, in the given facts and circumstances of the present case, the AO did not work in accordance with the provisions of law. [MMTC Ltd. vs. ACIT (ITA No. 1414/Del/2011) (Delhi-Trib.)]

     

    Also see for similar decisions: Kerala State Civil Supplies Corpn. Ltd. Vs. Jt. CIT (2006) 200 CTR (Ker) 653 : (2006) 282 ITR 647 (Ker)

     

    Power Finance Corporation Limited vs. ACIT (ITAT Delhi ‘E’ Bench)

     

    Note: One should be very careful in filing the claim of refund in time otherwise the assessee may lose the interest for the period for which the delay is attributable to assessee.


    Increase or reduction of interest on refund


    7. Increase or reduction of interest under certain circumstances: Where, as a result of an order under sub-section (3) of section 115WE or section 115WF or section 115WG or sub-section (3) of section 143 or section 144 or section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount on which interest was payable under sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly.


    In a case where the interest is reduced, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the amount of the excess interest paid and requiring him to pay such amount and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly. [Section 244A(3)]


    In other words, wherein an assessment or a proceeding for giving effect to order of appellate authorities, the amount on which interest was granted earlier is increased or reduced, the interest under Section 244A shall be consequently increased or reduced.


    There may be circumstances where the amount of refund may be higher than the amount of refund claimed in the income-tax return. Suppose, in a case, the assessee has made certain claims before the assessing officer during assessment proceedings u/s 143(3) and the same is accepted by the AO and the same was not claimed in the return, then the amount of refund will increase as compared to the amount of refund claimed in the ITR by the assessee.


    There may be a situation where refund with interest was granted to the assessee under section 143(1) after processing the return. While processing the return, certain TDS credits were not allowed as a result the amount of refund claimed in ITR is reduced. Subsequently, in assessment proceedings u/s143(3)/147 the same was allowed. Hence, in the order of assessment, the amount of refund increased and so the interest shall be payable on the increased amount of refund.


    Similarly, there may be certain disallowances in the assessment order by the assessing officer which is subsequently reversed by the CIT(A) or higher appellate authorities/forums then there will be an increase of refund amount than granted earlier and interest will be allowed on such increased amount.


    Section 115WE/WF/WG is related to the assessment of fringe benefits.


    Meaning of expression ‘date on which the refund is granted’


    In section 244A, the expression ‘date on which the refund is granted’ is used very widely. This expression is used in the context of allowing interest on tax refund from a date to the date on which the refund is granted. Hence, in computing the interest payable to the assessee on the amount of refund of tax/TDS, the ‘period of computing interest’ ends on this date - date on which the refund is granted.


    In the case of Rajasthan State Industrial Development & Investment Corporation Ltd vs. ACIT in ITA. No. 905/JP/2017 decided on 05/02/2018 The ITAT Jaipur, directed the AO to grant the refund upto the date on which the refund voucher is signed.


    The facts of the case are that the order u/s 143(3)/250/254 was passed by the Assessing Officer on 12.04.2010 and refund amounting to Rs. 25,69,83,890/- was determined and the same was issued to the assessee vide refund voucher dated 09.06.2010. The assessee moved an application u/s 154 before the AO requesting that the interest u/s 244A has been allowed up to May, 2010 instead of June, 2010. The contention so advanced by the assessee in its rectification application was rejected by the Assessing Officer stating that the interest u/s 244A is allowable to the assessee upto May, 2010 as per approval No. 498 dated 04.06.2010 and the same has been duly allowed to the assessee. The Hon'ble Tribunal directed the AO that the refund shall be granted till the date of refund voucher dated 09.06.2010.


    It is a settled proposition of law that interest on refund has to be granted upto the date of issue of the refund voucher. The Mumbai Tribunal had the occasion to consider a similar situation in the case of Jay Bros. Investment & Trading Co. (P) Ltd. vs. DCIT reported in (2002) 74 TTJ 748  wherein the Tribunal has held as under:


    “We have carefully considered the rival submissions and perused the record. In our view, the plea of the assessee deserves favourable consideration. In several cases, where a refund has to be granted to the assessee, the Revenue officials used to take longer time in clearing such refunds resulting in considerable hardship to the assessee and with a view to expedite grant of refund, a uniform period of three months has been specified in ss. 243 and 244 by Taxation Laws (Amendment) Act, 1970. If there is delay beyond the period of three months, IT Act provided for payment of interest to the assessee by the Central Government. While implementing the provisions of s. 243 of the Act, it was again found that the AO gave a different interpretation of the said section which is not intended by the Government. With a view to clarify the issue, the CBDT issued a circular (extracted above). It may also be noted that s. 243 is operative upto asst. yr. 1988-89 only whereas s. 244A comes into effect from 1st April, 1989 in lieu of ss. 214, 243 and 244 as clarified by the CBDT in its Circular No. 549 dt. 31st Oct., 1989, [published at (1990) 82 CTR (St) 1]. Therefore, it is clear that the circular issued in connection with s. 243 of the IT Act equally applies to s. 244A. It also appeals to logic that interest has to be paid till the date of preparation of cheque as otherwise the purpose of granting interest would be defeated because in the Government departments there may be long gap between the formal order and the date of preparation of cheques. The CBDT categorically stated that interest has to be granted upto the date of refund voucher. In fact, the cheque issued by the Government is known as “Income Tax Refund Order”. Therefore, it is proper to assume that the words “on which the refund is granted” in s. 244A mean the date of signing the Income-tax Refund Order i.e., the refund voucher. We, therefore, direct the AO to calculate interest payable to the assessee from the first day of April of the assessment year to the date on which the refund voucher is signed. Considering the circumstances of the case, we are also of the view that it is a fit case for awarding costs to the assessee under s. 255(2B) of the Act. In our view, awarding cost of Rs. 3,000 would meet the ends of justice and we hereby direct the respondent to deposit the cost with the Dy. Registrar, Tribunal (Mumbai Zone) within one month from the date of receipt of the order and the Registry is further directed to collect the cost and pay the same to the assessee upon presenting an application to that effect.” [Emphasis supplied]


    The facts of the case is that the assessee had filed its return of income on 29.12.1993 within the due date for the respective assessment year 1993-94 and claimed refund of excess TDS of Rs. 3,42,471/-. The return was processed under section 143(1)(a) of the Act on 29.03.1994 wherein the income returned by the assessee was accepted. 


    The intimation dated 29.03.1994 calculated the interest payable on the refund @ 12 per cent on Rs. 3,42,471 for 12 months only i.e., from 1st April, 1993 to 29th March, 1994. 


    The intimation under s. 143(1)(a) and the refund order dt. 13th Jan., 1995, were however served on the assessee only on 31st Jan., 1995.


    The case of the assessee is that interest under s. 244A has to be calculated upto the date of refund voucher i.e., 13th Jan., 1995. Since the AO has not calculated interest upto that date, assessee challenged his order before the CIT(A). As CIT(A) affirmed the order of the AO on this issue, assessee filed further appeal before the Tribunal, contending inter alia that under s. 244A of the IT Act, 1961, interest has to be calculated upto the date of refund voucher.


    Before the Tribunal the assessee contended that the words ".....to the date on which the refund is granted" in sub-cl. 1(a), the date of cheque/refund voucher/refund order should be taken as the date of refund and not the date of assessment order or intimation wherein a formal quantification of amount refundable takes place. It may be noted that upto 1st April, 1989, interest on the refund is permissible as prescribed under s. 243 of the Act wherein similar expression is used by legislature. Sec. 244A comes into effect from 1st April, 1989, whereas s. 243 is available upto or prior to 1st April, 1989. The words "to the date of the order granting the refund" in s. 243 of the Act appear to have been misinterpreted by some AOs which lead to clarification by CBDT by a Circular No. 20-D(XXII-22) of 1968, dt. 20th Aug., 1968, which is extracted below for immediate reference:


    "Under the terms of s. 243, interest is payable by the Government where the refund is not granted within three months from the date on which the total income is determined and the interest where payable is to be calculated at the specified rate, from the date immediately following the expiry of the three months aforesaid to the date of the order granting the refund. From this, it is clear that the date of the order granting the refund is the date of the refund voucher itself. The view stated to have been taken by some ITOs, that the date of the assessment order is to be taken as the ‘date of order the granting the refund’ is not correct. Thus, in cases where interest is payable by the Central Government to assessee under s. 243 of the Act, such interest is to be calculated up to the date of issue of the refund voucher."


    Explaining further the assessee submitted that excess tax paid legitimately belongs to the assessee and for the period for which the assessee is deprived of such amount the legislature in its wisdom thought that the assessee should be compensated in the form of interest.


    If the expression "the refund is granted" is interpreted to mean the date of assessment order, there may be a situation where refund may be determined in an assessment order but cheque is not issued for considerable period of time in which event Government enjoys the benefit of possessing assessee’s money without paying interest whereas assessee is deprived of its money and also compensatory interest for the period of delay i.e. between date of assessment order and date of cheque which may be caused on account of usual bureaucratic red-tapism and other reasons. 


    He submitted that in the instant case the refund voucher was signed ten months after the date of intimation for which interest has to be granted. He also submitted that in spite of clarification by CBDT the Tax authorities rejected the claim of the assessee and hence this is a fit case for awarding costs under s. 255(2B) of the Act inasmuch as the assessee had to incur expenditure on the cost of litigation upto the date of Tribunal. 


    A similar proposition has been laid down by ITAT Mumbai in the case of Tolani Education Foundation vs ACIT  in ITA Nos. 6508, 6509 & 6510/Mum/2013 (ITAT Mumbai) and in ITA No. 1510/Mum/2015 for the same assessee whereby refund has been directed to be calculated from the first day of the April of the assessment year to the date on which refund voucher is signed.


    Refund is granted the moment the concerned officer has signed the order regarding payment of the interest under section 244A of the Income-tax Act. [Rajasthan State Electricity Board vs. CIT & Ors. (2006) 281 ITR 274 (Raj)]. In a subsequent decision,  Lucknow Bench of the Tribunal in case of Indo Gulf Corporation Ltd. vs. DCIT reported in 141 TTJ 0862/61 DTR 203 wherein the decision of Hon’ble Rajasthan High Court in case of Rajasthan State Electricity Board (supra) has been followed. 


    Meaning of the term ‘every month or part of a month comprised in the period’


    Interest under section 244A is payable to the assessee for at the rate of 0.5 per cent for every month or part of a month comprised in the period.


    It means any fraction of a month shall be ignored and taken as a full month. The meaning of this expression is that even where the delay is for part of a month, interest @ 0.5% will be payable by the government on the amount of refund.


    A question arises whether the ‘month’ is taken as a British Calendar month or a period of 30 days. In other words, whether interest under section 244A of the Act for both the months when the tax was paid and when the tax refundable was subsequently determined is payable.


    This issue came up for consideration before the Hon’ble Gujarat High Court in case of CIT vs. Arvind Mills Ltd., in ITA No. 2486 of 2009 and the question for consideration framed for consideration by the Hon’ble Gujarat High Court was as under: 


    Whether assessee was entitled to interest under section 244A of the Act for both the months when the tax was paid and when the tax refundable was adjusted irrespective of the period between such events?


    The Hon’ble Gujarat High Court referring to the provisions of section 244A, Rule 119A, as well as section 3(35) of the General Clauses Act, held as under:-


    “26.0 From the above statutory provisions, it can be seen that Section 244A provides for payment of interest where refund of any amount becomes due to the assessee under the said Act. In such a case the assessee is entitled to receive in addition to the refund amount, simple interest at the prescribed rate. Clause (b) of section (1) of Section 244A of the Act in particular provides that 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 of 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. In the other words, interest at the prescribed rate is to be paid to the assessee on the refund of tax paid for every month or part of a month comprised in the period from the date of payment of the tax to the date on which refund is granted.


    27.0 Rule 119(A) of the said Rules further clarifies that in calculating the interest payable by the Government to the assessee under any provision of the act where interest is to be calculated for every month or part of a month comprised in a period, every fraction of month shall be deemed to be full month and the interest so calculated.


    28.0 By reading of Section (1) of Section 244A of the Act with Rule 119(A) of the said Rules would bring about situation when an assessee who has paid the tax and such tax is to be refunded, the assessee is to be paid interest at the prescribed rate for every month or part of a month comprising the period from the date of payment of the tax to the date on which the refund is granted. If such period is a fraction of a month, the same shall be deemed to be a full month and the interest shall be calculated for the entire month accordingly. In other words while calculating the period for grant of interest, if there is any fraction of a month, such fraction shall be ignored and instead, the assessee shall be paid interest for the full month. 29.0 So much is clearly emerging from the plain language used in the statutory provisions noticed by us. The case of the assessee however is that the word ‘month’ should be considered as per British Calender as defined in Section 3(35) of the General Clauses Act and accordingly if there is a fraction of a month on either side of the events i.e. payment of tax or refund thereof, both fractions should be considered as full months and for both months the assessee must be held entitled to receive interest.”


    “37.0 To our mind the words appearing in sub-section (1) of section 244A “comprised in a period” are significant. In clause (b) of section 244A (1) it is provided that the interest shall be calculated at the prescribed rate for every month or of part a month comprised in the period from the date the tax is paid to the date on which refund is granted. Similarly, in Rule 119(A) of the Rules, in clause-b thereof, it is provided that every month or part of a month comprised in a period, fraction of a month shall be deemed to be a full month. Therefore, in order to ascertain for how many months the assessee would be entitled to receive interest, the number of months comprised in the period shall have to be found out. In this context, the term ‘month’ in our opinion, must be given the ordinary sense of the term i.e. 30 days of period and not the British calendar month as defined under section 3(35) of the General Clauses Act. 


    38.0 We are of the opinion that the definition contained in Section 3(35) of the General Clauses Act defining the term ‘month’ cannot be adopted for the purpose of sub-section (1) of Section 244A of the Act. Such importation of the definition would lead to anomalous situation. For example, the assessee who pays tax on 1 st January of a particular year and is granted refund on 28 th of February of the same year, would be entitled to receive interest for two months. If the contention of the assessee in the present case is accepted, in a case where the assessee pays tax on 31 st January and is granted refund on 1 st February of the same year, shall also be entitled to interest for two full months. This would be so because the assessee contends that for the purpose of sub-section (1) of Section 244A the term ‘month’ should be understood as British Calender month and since Rule 119(A) of the Rules provides for ignoring a fraction of month and granting interest for the full month instead, the assessee in the second example given above should receive interest for month of January as well as for the month of February. To our mind such interpretation would only lead to anomalous situation and should therefore be avoided. 


    39.0 As already noted earlier, various decisions cited before us adopting the definition of term month contained in section 3(35) of the Act were rendered in the background of penal provisions contained in Section 271(1)(a) of the Act. The said provision prescribes penalty for non-filing or late filing of returns and the penalty is to be calculated on every month of such default. Under this background various Courts were of the opinion that the term ‘month’ must be understood as defined under Section 3(35) of the General Clauses Act. The Courts were of the opinion that there is nothing repugnant in Section 271(1)(a) of the Act so as to reject the applicability thereof. In the present case, however, we find that there are inbuilt indications why the term month must not be understood as British calendar month. Any other interpretation as already observed would lead to anomalous situation.” 


    This decision was followed in the case of Rajasthan State Industrial Development & Investment Corporation Ltd vs. ACIT in ITA. No. 905/JP/2017 decided on 05/02/2018 by the ITAT, Jaipur which in para 14 of the order held as follows-


    In light of section 244A, Rule 119A and the legal proposition so laid down by the Hon’ble Rajasthan High Court in case of Rajasthan State Electricity Board (supra), and Hon’ble Gujarat High Court in case of Arvind Mills (supra), in the instant case, where the assessee has paid the taxes and such taxes have been refunded, the assessee is to be paid interest at the prescribed rate for every month or part of a month comprising the period from the date of payment of the tax to the date on which the refund is granted. If such period is a fraction of a month, the same shall be deemed to be a full month and the interest shall be calculated for the entire month accordingly. Therefore, in order to ascertain for how many months the assessee would be entitled to receive interest, the number of months comprised in the period shall have to be determined and the term ‘month’ has to be given the ordinary sense of the term i.e. 30 days of period and not the British calendar month as defined under section 3(35) of the General Clauses Act. 


    The above decisions did not mention the clarification or method of computation for the months comprised in a period given by the CBDT itself in Circular No. 549 dated 31-1-1989.


    In para 11.4 under item (b), which is related to section 244A, it is stated that “the interest is to be calculated @ 1.5% “per month or part of a month” comprised in the period of delay for which the interest is payable. As already explained in para 10.11 ante, the meaning of this expression is that even where the delay is for part of a month, interest @ 1.5% will be charged.


    Para 10.11 describes the meaning of the expression “month or part of a month” used in sections 234A and 234B in which it is categorically stated that even where the delay is for part of a month say even for 1 day, interest at 2% (p.m.) will be charged.


    This principle is also clarified for section 220(2) in the said Circular as “The use of the expression "part of a month" in the sub-section means that even where the delay is for part of  a month, say even 1 day, interest shall be charged at 1.5%”


    The said Circular has also given certain Examples to illustrate the calculation of interest under section 244A and in example 1, a part of a month is taken as a full month. The example is reproduced below-


    Example 1: Grant of refund under section 143(1) out of advance tax paid or tax deducted at source - Interest payable by the department under section 244A:-

     

    (i) Tax paid by way of advance tax /TDS before 31-3-1989

    Rs. 3,00,000

    (ii) Tax due as per return of income for the assessment year 1989-90 filed on 31-8-1989, the due date

    Rs. 2,40,000

    (iii) Refund due to the assessee

    Rs. 60,000

    (iv) Date of actual refund granted under section 143(1)

    10-10-1989

    *(v) Interest payable by the Department @ 1.5% per month for 6 months and 10 days (1-4-1989 to 10-10-1989), i.e., for 7 months - @ 10.5% on Rs. 60,000

    Rs. 6,300

     

    *Note: Interest is to be paid for the full month even where the delay is for part of a month.

     

    Therefore, from the clarification given in the CBDT’s Circular even for a delay by a single day of the month, interest at the rate of 0.5 per cent will be payable on the amount of refund.

     

    Interest on refund amount arising due to  Additional Claims


    Under the Act, an assessee can raise an additional claim at the assessment or appellate stage which may not have been claimed in the original  or revised return due to inadvertent error or may have come his notice subsequent to filing of his return of income.


    In case an additional claim of the assessee is accepted and allowed to the assessee, this may lead to reduction in the income of the assessee which may result in refund of the taxes already paid on the basis of returned income.


    A question will arise whether interest u/s 244A is payable on the amount of such refund arising as a result of allowing the additional claim? If yes, then from which date the interest will be payable on such refund u/s 244A?


    Whether interest u/s 244A should be allowed from the date of application for the additional claim or from 1st day of Assessment Year or from date of allowability of claim?


    The law is silent on this issue. It is crystal clear that in case refund is claimed in the return of income, the interest is payable from the 1st day of the assessment year.


    Further, if the refund arises due to the additional claim being allowed the same needs to be refunded with interest u/s 244A in view of the legal provisions contained in section 244A since interest is mandatory and automatic. The judgment of Tata Chemicals (supra) also supports this view.


    If interest is payable from the 1st day of the assessment year can it be concluded that the time required to verify the additional claim of the assessee is the delay attributable to the assessee u/s 244A(2) and hence such period of delay should be excluded from computing the period of interest. The answer is ‘No’. This is because this can be considered as delay in claiming the refund by the assessee and not the delay in the proceedings so as to exclude the period.


    Hon’ble Gujarat High Court in the case of Ajanta Manufacturing Ltd. Vs. DCIT (2017) 391 ITR 33 (Guj.-HC) held that the act of revising the return or revising a claim during the course of assessment proceedings could not be said to be a reason for delaying the proceedings which could be attributable to the assessee. The fact that the assessee had filed an appeal which ultimately came to be allowed by the Commissioner, could not be a reason for delaying the proceedings which could be attributed to the assessee.


    First and foremost requirement of sub-section (2) of Section 244A is that the proceedings resulting into refund should have been delayed for the reasons attributable to the assessee, whether wholly or in part. If such requirement is satisfied, to the extent of the period of delay so attributable to the assessee, he would be disentitled to claim interest on refund.


    Interest under section 244A(1) was allowed from the 1st day of the assessment year.


    Similar decisions were taken by the Kerala High Court in case of CIT vs. South Indian Bank Limited (2012) 340 ITR 574 (Ker). In this context, the Court held in Para.6 as under :


    “6. Sub section (2) of section 244A provides that the assessee shall not be entitled to interest for the period of delay in issuing the proceedings leading to the refund that is attributable to the assessee. In other words, if the issue of the refund order is delayed for any period attributable to the assessee, then the assessee shall not be entitled to interest for such period. This is of course an exception to clauses (a) and (b) of section 244A(1) of the Act. In other words, if the issue of the proceedings, that is, refund order, is delayed for any period attributable to the assessee, then the assessee is not entitled to interest of such period. Further, what is clear from sub-section (2) is that, if the officer feels that delay in refund for any period is attributable to the assessee, the matter should be referred to the Commissioner or Chief Commissioner or any other notified person for deciding the issue and ordering exclusion of such periods for the purpose of granting interest to the assessee under section 244a(1) of the Act. In this case, there was no decision by the Commissioner or Chief Commissioner on this issue and so much so, we do not think the Assessing Officer made out the case of delay in refund for any period attributable to the assessee disentitling for interest. So much so, in our view, the officer has no escape from granting interest to the assessee in terms of section 244A(1)(a) of the Act.


    Similarly, Bombay High Court in the case of Chetan N. Shah Vs. M.K. Moghe, Commissioner of Income-tax 1, Mumbai [2015] 53 taxmann.com 18 (Bombay), had an occasion to interpret sub-section (2) of Section 244A. The facts were that in revision proceedings, the assessee took a stand that in the return, there was an erroneous declaration of an amount of income chargeable to the tax. The Commissioner accepted the assessee’s contention. Even in such a situation, the Court held that sub-section (2) of Section 244A would have no applicability.


    In another case of  Pr. CIT Vs State Bank of India in ITA No. 1218 of 2016, the Bombay High Court dismissed the appeal of the Department involving similar facts.


    In this case, assessee had filed return of income for the assessment year 2001-02. During the course of the assessment, the assessee argued before the assessing officer that a portion of interest income which the assessee had in the return offered to tax, on the basis of accrual had not become due and that therefore, such interest income should not be taxed for the year under consideration. A note to this effect was inserted to the return of income. The assessing officer, however, did not accept the stand of the assessee upon which the assessee filed appeal to the Commissioner of Income-tax (Appeals). The CIT(A) allowed the appeal of the assessee and deleted tax on the disputed component of interest income. The order of CIT(A) became final.


    The question of refunding the excess tax with interest came up for consideration before the assessing officer. He granted refund with interest only from the date of the order of the CIT(A). The assessee disputed this position. The issue eventually reached the Tribunal. The Tribunal referred to the provisions of sub-sections (1) and (2) of Section 244A of the Act and held that the stand of the assessing officer was incorrect and directed the AO to grant interest u/s 244A from 1st April itself.


    In another recent case decided by the Bombay High Court on similar facts in the case of CIT vs. Melstar Information Technologies Ltd in Income Tax Appeal No. 444 of 2017 decided on 10.06.2019 it was held that there is no allegation or material on record to suggest that any of the proceedings hit the assessee’s appeal before the Tribunal or remanded the proceedings before the CIT(A) whether in any manner delayed on accounts of the reasons attributable to the assessee. The Tribunal was, therefore, correct in allowing the interest to the assessee.


    However, there are certain contrary decisions too on the matter. In National Horticulture Board vs. Union of India and others, (2002) 253 ITR 12 (P&H), the Punjab and Haryana High Court declined to allow interest for the period of delay attributable to the assessee arising from belated claim of exemption. However, in this case, the assessee claimed the exemption after CBDT accepted the assessee’s application for grant of exemption u/s 10(23C)(vi). The application was filed before the CBDT after the AO passed the assessment order.


    The assessment was framed on 7-10-1998, and it was long thereafter that the petitioner applied for seeking exemption under section 10(23C)(iv) of the Act on 9-2-1999, and the notification granting exemption was published on 6-4-1999. It was then the petitioner applied for rectification of the order of assessment on 9-4-1999. The court held that the delay in claiming refund was attributable to the assessee inasmuch as it did not apply for the same prior to 9-4-1999. In this view of the matter, the petitioner-assessee is not entitled to any interest up to 9-4-1999.


    This decision is distinguishable from the facts of the cases mentioned above since this is a case where an application for exemption before the CBDT was filed and a notification was to be issued by the CBDT for such claiming the exemption.


    However, the decision of National Horticulture Board (supra) is followed in the case of CIT vs. Assam Roofing Ltd. (2011) 330 ITR 87 (Gau.-HC).  In the present case the respondent-assessee had voluntarily included the amount received on account of transport subsidy as taxable income. On the said basis the assessment was made. At no point of time in the course of the assessment proceeding the assessee had taken the stand that the amount received on account of transport subsidy is not taxable. The aforesaid issue was raised by the assessee only in the appeal filed before the learned CIT(A) which was disposed of by the order dt. 27th Oct., 1994. Thereafter, on 13th Dec., 1994, the amount of transport subsidy earlier included in the taxable income of the assessee was deleted and orders were passed for refund. The assessment was completed on 16th May, 1994, under the provisions of s. 143(3) of the Act.


    Their Lordships have held that refund being consequential to the order of the learned CIT(A), dt. 27th Oct., 1994 by which the assessment order dt. 16th May, 1994 became liable to modification, it would be correct to hold that the assessee would be entitled to interest on the refunded amount, w.e.f. 16th May, 1994 (from the date of assessment order) till date of payment of the refundable amount.


    It should be noted that this case was decided on 6th September, 2010 but was not mentioned in the earlier decisions. However, ITAT Mumbai in the case of DCIT vs. State Bank of India in ITA No. 1360/Mum/2016 decided on 21.05.2018 distinguished the case of Assam Roofing (supra) and upheld the order of CIT(A) who allowed the interest under section 244A(1) from 1st day of the assessment year when the amount of refund became due for the first time because of the appellate order. 


    Similar distinguishment is also found in the case of ACIT vs. ACC Limited in ITA Nos. 6262 & 6263/Mum/2010 decided by ITAT Mumbai on 21.12.2011. In this case, the additional claims were lodged for the first time before the Tribunal and interest were allowed on the refund arising due to the allowability of the additional claim from the 1st day of Assessment Year.


    Interest u/s 244A has to be calculated on the tax refund without reducing the interest granted earlier on a refund - A case of increase or reduction of tax amount as per section 244A(3)


    Consider a case where a refund is issued to the assessee after processing the return u/s 143(1). Let us take an example to clarify the issue.


    Illustration


    Mr. Rakesh has filed his return of income for AY 2017-18 on 31.07.2017 and claimed refund of Rs. 1,200 being excess tax deducted by the deductors. His return was processed on 10.03.2019 after adjusting for certain mismatches in the return and Form 26AS and the refund amount was determined at Rs. 1,000. The refund amount of Rs. 1,120 including interest of Rs. 120 u/s 244A was paid to him in March 2019. His case was selected for scrutiny assessment u/s 143(3) and the mismatch amount was rectified and the refund of tax amount was determined at Rs. 1,200. The assessment order u/s 143(3) was passed on 20.12.2019.


    In this case, the interest shall be determined in the following manner-

    Particulars

    Amount

    (in Rs.)

    Tax amount on which interest was payable under section 244A(1)

    1,200

    Less: Tax amount already refunded

    [Adjusted as per section 244A(3)]

    1,000

    Balance amount of tax on which interest is payable

    200

    Interest u/s 244A

    (from 01.04.2017 to 30.03.2020 = 36 months @ 0.5% p.m. comes to 18%)

    36

    Total amount refundable

    236

     

    In the case of Abudhabi Commercial Bank Ltd vs. DCIT in ITA No.5136/Mum/2009, ITAT Mumbai had an occasion to decide the method of computation of refund amount including interest u/s 244A when the refund was earlier granted.


    In this case, while calculating the interest by the AO u/s 244A on the increased amount of refund, the refund included the interest already granted has been reduced from the refund due to the assessee and on the remaining amount, interest has been calculated. The learned AR of the assessee submitted that the interest on the refund due to the assessee should have been calculated only after reducing the refund of tax and not the refund of interest already granted.


    It is held that the interest needs to be calculated on the refund due to the assessee without reducing the interest under section 244A which is part of the refund earlier granted. In the above case it was held vide Para 7 as under: 


    7. We have considered the rival contentions and relevant record. It is evident from the orders of the lower authorities that the AO has calculated the interest u/s 244A by reducing the refund of tax already granted to the assessee. In the amount of refund the interest which was granted earlier occasions also included. Therefore, the AO has reduced the total refund granted which consists refund of tax and interest already granted u/s 244A. Therefore, we find force in the contention of the learned AR that while computing the interest u/s 244A, the AO has reduced both the refund of tax as well interest granted u/s 244A from the refund due to the assessees. In order to compute the interest u/s 244A, the amount of balance refund due to the assessee has to be determined after deducting the amount of tax already refunded and not amount of interest already granted u/s 244A. Thus the interest component in the refund already granted should be excluded while the same is to be reduced from the refund due to the assessee for the purposes of section 244A for future interest on the balance refund due amount. Accordingly, we are of the view that the method adopted by the AO suffered from grave error as the same has resulted the reduction of interest payable to the assessee because the principal amount is reduced by interest component already granted and then future interest is computed. The interest already granted up to a date is relevant only for exclusion of period for which it is granted and the future interest has to be granted from the subsequent period. Therefore, the interest already granted cannot reduce the principle refund due to the assessee but the amount which represents the tax already refunded has to be reduced from the total refund doe to the assessee for computation of interest u/s 244A.


    Finally, the ITAT decided the issue in favour of the assessee and held as follows-


    We accordingly decide this issue in favour of the assessee and direct the AO to calculate the interest on the refund due to the assessee without reducing the interest under section 244A which is part of the refund earlier granted from the refund due.


    This decision is followed by the ITAT Mumbai in the case of ACIT vs. ACC Limited in ITA No. 6262 & 6263/Mum/2010.


    Interest u/s 244A-Year of taxability


    The interest granted u/s 244A on the refund amount is taxable in the hands of the assessee under the head ‘Income from other sources’. Hence, the entire amount of interest is taxable under the Income Tax Act. In case of non-residents, TDS is applicable on the interest income u/s 244A. In fact, the income-tax department itself deducts TDS in case interest is paid on the refund amount to a non-resident. 


    However, it is not clear in which year the interest on refund amount will be taxable. As per the scheme of the Income Tax Act, once a return is filed the same is processed u/s 143(1) and the refund amount if any due to the assessee is determined. In cases, where the return is selected for scrutiny assessment, the refund is in many cases issued after the assessment order u/s 143(3) is passed. Refund may also become due to the assessee as a result of appeal effect order.


    Hence, the date on which refund is determined and granted may be different. If both the dates happen in the same financial year, it does not create any difficulty in determining the year of taxability. A problem arises when the dates fall in different financial years.


    Further, whether such interest on refund amount is assessable on a year to year basis from the date of accrual till the date of receipt of refund or it is wholly taxable in the year of receipt is a matter of grave concern.


    In the case of M. Jaffer Saheb (Decd.) Vs. CIT in R.C. No. 127 of 1997 the Andhra Pradesh High Court decided on 19.12.2013 held that interest on refund u/s 244A is not taxable in the year of grant of refund but has to be spread over the respective assessment years to which it relates. In this case, the decision of Kerala High Court in the case of K. Devayani Amma Vs. DCIT (2010) 328 ITR 10 (Ker) is distinguished wherein it was held that interest u/s 244A is taxable in the year of receipt.


    However, ITAT Delhi in the case of DCIT vs. HCL Comnet Ltd in I.T.A. No. 4809/DEL/2016 decided on 06.06.2019 following the decision of Smt K. Devyani Amma vs DCIT 328 ITR 10 directed the AO to treat the interest on refund as income of AY 2015-16 i.e. the year in which the refund is actually received.


    Similarly, ITAT Mumbai (Special Bench) in the case of Avada Trading Company Pvt. Ltd. (2006) 100 ITD 131 (Mum)/ (2006) 284 ITR 73 (Mum) it was held that the interest on income tax refund would be assessable in the year in which it is granted u/s 143(1)(a) and could not be deferred till the final assessment u/s 143(3).


    In the case of Hindustan Petroleum Corporation Ltd. vs ACIT in I.T.A. No. 8322/Mum/2003, the assessee claims that the interest income on refund will be subject to tax on receipt basis but only upon the final assessment u/s.143(3). The Mumbai Tribunal  following the decision in Avada Trading Co. Ltd. (supra) rejected the contention of the assessee and held that interest u/s.244A is assessable on the grant of refund, of which it forms a part, upon processing u/s 143(1). Accordingly, the entire interest received is subject to tax in the first instance. No part thereof can be with-held for the assessment on the ground of being provisional.


    The Tribunal further held that interest income shall be charged to income tax in the respective assessment years in which the interest income accrued and not fully in one year in which the interest is received. In such circumstances, the proper course would be to claim the same through rectification u/s 154. It was further clarified that the time limit for rectification u/s. 154 would extend on the basis of the orders under appellate proceedings as per decision of Delhi High Court in the case of CIT vs. Tony Electronics Ltd. [2010] 320 ITR 378 (Del).


    As per the decision of Delhi High Court in the case of CIT vs. Tony Electronics Ltd. (supra) once an appeal against the order passed by an authority is preferred and is decided by the appellate authority, the order of the Assessing Officer merges with the order of the appellate authority. After merger, the order of the original authority ceases to exist and the order of the appellate authority prevails. Thus, the period of limitation of 4 years for the purpose of section 154(7) has to be counted from the date of the order of the Appellate Authority. In this case, the Delhi High Court has followed the decision of the Supreme Court in case of Hind Wire Industries v. CIT (1995) 212 ITR 639 (SC)


    Adjustment of interest payment on income tax dues against the interest income on tax refunds


    The interest received on income tax refund cannot be adjusted or offset with the interest payable on the income tax liability. adjustment of interest payment on income tax dues against the interest income on tax refunds


    In the case of ITC Limited vs. ACIT in ITA No.1267 & 685/Kol/2014, ITAT Kolkata following the third member decision of the Pune Tribunal in the case of DCIT vs. Sandvik Asia Ltd. [133 ITD 126 (Pune-TM)(2011)] did not allow interest payment on income tax dues against the interest income on the income tax refunds.


    Hence it can be seen that there is no consensus about the taxability of interest income on the refund amount. Presently, to avoid any dispute one may refer to Form 26AS where the date on which the refund amount is granted is reflected and can include the interest income in the total income of that previous year in which the date of refund in Form 26AS falls.


    Interest u/s 244A on Unpaid Interest on refund/Interest on Interest


    There may come a situation where the income tax refund is issued to the assessee but interest was not paid. After rectification or appeal order or under any other circumstances the AO issues the interest. Under the circumstances, up to what date the interest shall be payable-Will it be up to the date of refund of tax or upto the date of payment of interest? If it is up to the latter date i.e. date of payment of interest then on what amount the interest will be paid.


    Now consider the following situation-

    Tax liability as per return

    Rs. 1,00,000

    Refund amount claimed

    Rs. 11,000

    Refund determined and issued as per Intimation u/s 143(1) after certain adjustments

    Rs. 9,000

    Since the refund amount was reduced to below 10% of tax liability no interest was allowed.


    After rectification, the refund amount determined at return figure

    Rs. 11,000


    In this case, what should be the amount of interest u/s 244A?


    Let us analyze the situation with the help of certain landmark judicial precedents.


    In a judgment dated 03.12.2009, rendered by the Hon'ble Supreme Court in a case titled as CIT v. HEG Ltd. [2010] 324 ITR 331 (SC), wherein the words 'any amount' have been interpreted. The relevant portion of the aforesaid judgment is reproduced below-


    "The next question which we are required to answer is-what is the meaning of the words "refund of any amount becomes due to the assessee" in section 244A? In the present case, as stated above, there are two components of the tax paid by the assessee for which the assessee was granted refund, namely TDS of Rs. 45,73,528 and tax paid after original assessment of Rs. 1,71,00,320. The Department contends that the works "any amount" will not include the interest which accrued to the respondent for not refunding Rs. 45,73,528 for 57 months. We see no merit in this argument. The interest component will partake the character of the "amount due' under section 244A. It becomes an integral part of Rs. 45,73,528 which is not paid for 57 months after the said amount became due and payable. As can be seen from the facts narrated above, this is the case of short payment by the Department and it is in this way that the assessee claims interest under section 244A of the Income-tax Act. Therefore, on both the aforestated grounds, we are of the view that the assessee was entitled to interest for 57 months on Rs. 45,73,528. The principal amount of Rs. 45,73,528 has been paid on December 31, 1997 but net of interest which, as stated above partook the character of "amount due" under section 244A."


    In view of the ratio laid down by the Hon'ble Supreme Court in the judgment, the interest on the delayed refund becomes part of the principal amount and the delayed interest includes the interest for not refunding the principal amount. Accordingly, it also includes the interest on the delayed refund.


    In the landmark judgment of Hon'ble Supreme Court in the case of Sandvik Asia Ltd. v. CIT [2006] 280 ITR 643 (SC)/Case No.: Appeal (Civil) 1337-1340 of 2005 decided on 27.01.2006, the assessee demanded compensation from the income tax department by way of interest on the delay in the payment of amounts lawfully due to the appellant which were withheld wrongly and contrary to law by the Income-tax Department for an inordinately long period of up to 17 years. The assessee contended that the Department had enjoyed the benefit of these funds while the appellant was deprived of the same.


    Finally, their Lordships after expressing their displeasure over the lackadaisical attitude of the department in dealing with the matter held the followings-


    The Delhi High Court in Goodyear India Ltd. Case (supra) held that an assessee is entitled to further interest under Section 244 of the Act on interest under Section 214 of the Act which had been withheld by the Revenue. The case of the Revenue was that interest payable to an assessee under Section 214 of the Act was not a refund as defined in Section 237 of the Act and hence no interest could be granted to the assessee under Section 244 of the Act. The Court held that for this purpose Section 240 of the Act was relevant which referred to refund of 'any amount becoming due to an assessee' and that the said phrase would include interest and hence the assessee was entitled to further interest on interest wrongfully withheld. It is also important to appreciate that the Delhi High Court also referred to the Gujarat High Court decision in D.J. Works case (supra) and read it as taking the same view. This supports the view of the appellant on the correct reading of the Gujarat decision.


    As already noticed in paragraph supra, the Madras High Court in Needle Industries Private Ltd. Case (supra) has also interpreted the phrase 'any amount' in the same manner when considering the provisions of Section 244(1A) of the Act, which also uses the same phrase in the context of interest payable by the Revenue. In express terms the Court held that the expression referred not only to the tax but also to interest. The Court agreed with a similar view taken by the Kerala High Court in the case of Ambat Echukutty Menon (supra). Both these were cases where the Court was called upon to decide whether further interest was payable by the Revenue on interest which had to be repaid to assessee.


    This is the fit and proper case in which action should be initiated against all the officers concerned who were all in charge of this case at the appropriate and relevant point of time and because of whose inaction the appellant was made to suffer both financially and mentally, even though the amount was liable to be refunded in the year 1986 and even prior to. A copy of this judgment will be forwarded to the Hon'ble Minister for Finance for his perusal and further appropriate action against the erring officials on whose lethargic and adamant attitude the Department has to suffer financially. (Emphasis added)


    The Court finally allowed the appeal in favour of the assessee and directed the department to pay the interest on the unpaid interest.


    The division bench of the Apex Court in the case of CIT vs. Gujarat Fluoro Chemicals (2013) 358 ITR 291 (SC) doubted the correctness of the judgment of the Apex Court in the case of Sandvik Asia Ltd. (supra). Accordingly, the Court recommended that the issue should be referred to a larger bench. However, a three Judge Bench decision in Gujarat Fluoro Chemicals (supra), it was categorically held that the only amount which an assessee aggrieved by delayed payment can legitimately claim under the statute is interest and that "no other interest on such statutory interest" is payable. In this case, their Lordships held that-


    “As we have already noticed, in Sandvik case (supra) this Court was considering the issue whether an assessee who is made to wait for refund of interest for decades be compensated for the great prejudice caused to it due to the delay in its payment after the lapse of statutory period. In the facts of that case, this Court had come to the conclusion that there was an inordinate delay on the part of the Revenue in refunding certain amount which included the statutory interest and therefore, directed the Revenue to pay compensation for the same not an interest on interest.”


    “Further it is brought to our notice that the Legislature by the Act No. 4 of 1988 (w.e.f. 01.04.1989) has inserted Section 244A to the Act which provides for interest on refunds under various contingencies. We clarify that it is only that interest provided for under the statute which may be claimed by an assessee from the Revenue and no other interest on such statutory interest. “


    The ITAT Chandigarh in the case of  Ambuja Darla Kashlog Mangoo Transport Cooperative Society Ltd. vs DCIT in ITA No. 280/Chd/2017 decided on 30.10.2017 allowed the appeal in assessee’s favour for delay in payment of interest to the assessee by the department in the following words-


    “14. We find force in the above submissions of the Ld. AR of the assessee. The larger Bench of the Hon'ble Supreme court in the case of ‘CIT Vs. H.E.G. Ltd.’ (supra) has defined the term ‘refund of any amount becomes due to the assessee” and has held that on the date of payment of the refund along with interest, the withheld or the unpaid amount on the said date becomes amount due to the assessee upon which the assessee is entitled to interest u/s 244A of the Act from the date of withholding till the date of payment. The Hon'ble Supreme Court in the case of ‘CIT Vs. Gujarat Fluoro Chemicals’ (2014) 1 SCC 126 (SC) has also held that in case of inordinate delay in the payment of interest, the Revenue can be directed to pay compensation for the same by way of interest .


    15. In the case in hand also, there is an inordinate delay of more than 10 years in payment of balance amount to the assessee, hence, in the light of the decision of the Hon'ble Supreme Court in the case of CIT Vs. Gujarat Fluoro Chemicals’ (2014) 1 SCC 126 (SC), the assessee is otherwise entitled for compensation from the Revenue for inordinate delay in the payment of interest . We accordingly direct the Revenue to pay compensation in the shape of simple interest on the amount due at the rate at which the assessee otherwise would have been entitled to, on the delayed payment of excess tax paid. In view of this, these appeals of the assessee are treated as allowed.”


    The Revenue moved Miscellaneous Application M.A. Nos. 13 to 16/Chd/2019 against the said order only to be dismissed by the ITAT. Revenue filed an appeal against the order of the ITAT before the Himachal Pradesh High Court which was dismissed by the High Court due to monetary limit and not on merits. [Pr.CIT vs Ambuja Darla Kashlog Mangoo Transport Co-operative Society (2020) 114 taxmann.com 527 (Himachal Pradesh)]


    In a case before the Delhi High court titled CIT vs. Indian Farmers Fertilizer Cooperative (ITA 542/2012 dated 3.3.2015), the High Court following the ratio of  Gujarat Fluoro Chemicals (supra) did not upheld the order of the ITAT to the extent it was directed for payment of any sum over and above interest payable under Section 244A(1) to the assessee. The reason for the decision is reproduced below-


    “8. In Sandvik Asia Ltd. (supra), the Court admittedly was dealing with facts prior to the insertion of Section 244A. Therefore, it would be inappropriate for this Court to consider that judgment now as binding authority. More importantly, Sandvik Asia Ltd. (supra) was explained by the larger Bench i.e. three Judge Bench decision in Gujarat Fluoro Chemicals (supra) where the Supreme Court categorically held that the only amount which an assessee aggrieved by delayed payment can legitimately claim under the statute is interest and that "no other interest on such statutory interest" is payable. This ruling, in the opinion of this Court, rendered by a larger Bench, would have to be followed as opposed to the ratio in HEG Ltd. (supra) where the Supreme Court had expressed a contrary opinion by indicating that the interest component towards the delayed payment of the tax refund would partake of the character of the „amount of due‟ under Section 244 A. In other words, HEG Ltd. seems to suggest that there would be dues on bar, refund and delayed interest. Clearly, that view has not been approved in Gujarat Fluoro Chemicals (supra). It was urged during the hearing that India Trade Promotion Organisation (supra) has become final since the revenue‟s appeal was withdrawn. This Court is of the opinion that such detail notwithstanding, the law declared in Gujarat Fluoro Chemicals (supra) is binding and permits no deviation.”

    [India Trade Promotion Organisation V. CIT (2014) 361 ITR 646 (Del-HC)]


    The ITAT relied upon the decision of the Supreme Court in Sandvik Asia (supra) and held that in its opinion the assessee was entitled to interest on delayed payment of interest and upheld the assessee’s contentions as follows :


    "10. We find that Hon'ble Apex Court in the case of Sandvik Asia Ltd. vs. C.I.T. & Ors. 280 ITR 643 had held that "assessee was entitled to compensation by way of interest under section 214 and section 244 for the delay in payment interest u/s 214 and 244 lawfully due to the assessee which were withheld wrongly and contrary to law by the department for inordinate long period." In our considered opinion, the ratio from this case law is rightly applicable on the facts of the case. The above said CBDT Instruction No. 2-2007, dated 28.3.2007 is also germane in this regard. Hence, in our considered opinion, the assessee is entitled to interest on the delayed payment of interest and accordingly the assessee's appeal is allowed."


    The thumb point is that there is no consensus among the courts on the issue of awarding interest on unpaid interest on the refund amount. However, it is certain that when there is inordinate delay in the payment of interest, the courts do not hesitate to award compensation to the assessee despite no specific provision in the statute.


    Interest u/s 244A on Refund arising due to waiver of Interest


    In some cases, a refund may become due to the assessee after the interest u/s 234A or 234B/234C or section 220(2) is waived by the CCIT/CIT. A question may arise whether interest is payable on the refund amount which has arisen due to the waiver of interest.


    A question on the issue came up for consideration before the Delhi High Court in the case of Preeti Aggarwala vs. CIT [W.P.(C) 1011/2016] in the context of waiver of interest u/s 220(2) with the following question of law-


    Whether the expression “in any other case” occurring in Section 244A (1) (b) of the Income Tax Act, 1961 (“Act”) would include the amount of refund which constitutes the interest that has been waived by the Income Tax Department (“Department”) under Section 220 (2A) of the Act?


    The brief facts of the case is that the department has recovered arrear taxes with interest u/s 220(2) from the assessee. Subsequently, on the prayer of the assessee, the CCIT has waived all the eligible amounts of interests for late payments. Hence, the recovered interest is now refundable to the assessee. The assessee subsequent to the waiver of interest applied for payment of interest u/s 244A to the assessing officer who has rejected the assessee’s demand for interest u/s 244A.


    Deciding the question in favour of the assessee, their Lordships after analysing section 244A(1)(b) held as follows-


    The sum found refundable to the Petitioners as a result of the waiver of interest order passed by the CCIT is a definite sum that was wrongly deducted from the Petitioners as interest. Payment of interest on that sum by the Revenue cannot be characterised as payment of 'interest on interest'.


    The interest amount as claimed by the Petitioners on the amount refunded to them will now be paid by the Department to the Petitioners within four weeks from today in terms of Section 244A(1)(b) of the Act from the date of recovery till the date of payment.


    The applicability of section 244A(1)(b) in this case was discussed in the following words-


    16. It is not an issue that neither sub-clauses (a) (aa) of sub-section (1) of Section 244 A of the Act apply in the present case. Clause (b) deals with 'any other case‟ - which has to be a case other than the refund of taxes or penalties. Clause (b) stipulates that “in any other case” the interest payable 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.


    “17. This has to be read with the expression “refund of any amount that becomes due” occurring in Section 244 A (1) of the Act. When the entire sub-section (1) of Section 244 A of the Act is read as a whole, the legislative intent does not appear to be to limit the expression “any amount becomes due” occurring in Section 244A (1) or the expression “in any other case” occurring in Section 244A (1) (b) only to tax and penalty as is sought to be contended by the Department. The words “as the case may be” refers to the period for which the interest will become payable and that the period is said to be dates of payment of tax or penalty to the date on which the refund is granted. This does not mean that the amount other than tax or penalty cannot be included in the expression “in any other case”. it is only reflective of the periods for which such interest would become payable. In fact the disjunctive “or” between the words “period” and “periods” indicates that 'in any other case' interest would be calculated for every month or part of a month comprised in the period or periods from the date on which the refund is granted. The Court is not prepared to read the expression in the narrow way as suggested by Mr. Manchanda.


    18. The Explanation under clause (b) of Section 244 A (1) of the Act serves to clarify the expression “the dates of payment of the tax or penalty.” It is not intended to and in fact does not whittle down the ambit of Section 244 A (1) (b) of the Act.”


    An issue came up for consideration before the Hon’ble Supreme Court in the case of K. Lakshmanya & Co. v. Commissioner of Income Tax [2017] 399 ITR 657 (SC). The main argument before the court was argued on the use of words ‘due to the assessee’ employed in the opening sentence of section 244A(1).


    In this case, the interest u/s 234A to 234C was partially waived by the Settlement Commission.  The AO refused to grant interest u/s 244A on the amount of refund due to the assessee. 


    This was done on two grounds, namely, that the provisions of Section 244A do not provide for payment of interest on refund due on account of waiver of interest that is charged under Sections 234A-C of the Act and second, that the power assumed by the Settlement Commission for waiver of interest, by following the CBDT circular referred to, does not enable the Commission to provide for payment of interest under Section 244A.


    CIT(A) and the ITAT decided the case in favour of the assessee while the Karnataka High Court decided the case against the assessee.


    After hearing both the parties, their Lordships have observed that under this section, it is enough that the refund becomes due under the Income-tax Act, in which case the assessee shall, subject to the provisions of this Section, be entitled to receive simple interest. It was further observed that the present case would fall outside sub-clauses (a) and (aa) of this provision and, therefore, fall within the residuary clause, namely sub-clause (b) of Section 244A.


    Finally, the case was decided in favour of the assessee in the following words-


    “21. We are of the view that the expression "due" only means that a refund becomes due if there is an order under the Act which either reduces or waives tax or interest. It is of no matter that the interest that is waived is discretionary in nature, for the moment that discretion is exercised, a concomitant right springs into being in favour of the assessee. We are, therefore of view that the C.I.T. (Appeals) and the ITAT were correct in their view and that consequently, the High Court was incorrect in its view that since a discretionary power has been exercised, no concomitant right was found for refund of interest to the assessee.”


    Issue of Carry forward of TDS and claim in subsequent year - interest from when?


    It happens many times that tax is deducted in one year but the credit of TDS u/s 199 of the Act is given in another assessment year. For example, if tax is deducted on advance rent and the rent amount is offered to tax in more than one year then proportionate TDS is to be claimed in the respective years in which income is offered to tax. If TDS of Rs. 36,000/- on advance rent of Rs. 3,60,000 is appearing in Form 26AS for AY 2019-20 and the income offered to tax is Rs. 1,20,000 for 3 assessment years then Rs. 12,000 is to be claimed in each of the three assessment years for AYs 2019-20, 2020-21 and 2021-22.


    As per Rule 37BA(3)(i), Credit for tax deducted at source (TDS) and paid to the Central Government, shall be given for the assessment year for which such income is assessable.


    In this case, interest shall be given from the 1st day of the assessment year irrespective of the fact that the TDS was deposited during AY 2019-20. For example, for AY 2021-22, the interest shall be payable from 1st April 2021 and not from 01.04.2019 in respect of income offered and the corresponding TDS and refund is claimed in AY 2021-22. This is because section 244(1)(a) states that where the refund is out of any tax treated as paid under section 199 and the same is due as refund to the assessee then interest shall be payable from the 1st day of the assessment year. 


    Interest u/s 244A where delay in filing of return is condoned


    U/s 119(2)(b), the Board has the power to condone the delay in filing of the return of income/loss if the same is not filed within the time allowed u/s 139 of the Act. In this context, CBDT has issued a Circular No. 9/2015 dated 09.06.2015 for condonation of delay in filing returns for claiming refund and returns claiming carry forward of loss and set-off thereof under section 119(2)(b) of the Act.


    The said circular provides that no interest shall be admissible for belated claim of refunds Belated claim of refund means claim of additional amount of refund after completion of assessment for the same year.


    This restricts interest on returns already furnished and assessed. In case return is furnished for the first time after getting condonation u/s 119(2)(b), then the interest shall be admissible from the date of furnishing of return of income to the date on which the refund is granted u/s 244A(1)(a)(ii).


    Interest u/s 244A on refund due after MAT Credit


    Interest under section 244A is allowable on refund of taxes due to the assessee arrived at after giving credit of TDS, advance tax, self assessment tax and brought forward MAT u/s 115JAA from gross tax liability. [CIT vs. Apar Industries Ltd. (2010) 323 ITR 411/190 Taxman 353 (Bom.)


    CBDT Circulars and Instructions


    CBDT Circular No 14 XL-35 dated 11.04.1955


    Miscellaneous—Refund and reliefs due to assessees—Departmental attitude towards


    ASSESSMENT SECTIONS 143


    The Board have issued instructions from time to time in regard to the attitude which the Officers of the Department should adopt in dealing with assessees in matters affecting their interest and convenience. It appears that these instructions are not being uniformly followed.


    2. Complaints are still being received that while ITO’s are prompt in making assessments likely to result into demands and in effecting their recovery, they are lethargic and indifferent in granting refunds and giving reliefs due to assessees under the Act. Dilatoriness or indifference in dealing with refund claims (either under s. 48 or due to appellate, revisional, etc., orders) must be completely avoided so that the public may feel that the Government are actually prompt and careful in the matter of collecting taxes and granting refunds and giving reliefs.


    3. Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the Department for it would inspire confidence in him that he may be sure of getting a square deal from the Department. Although, therefore, the responsibility for claiming refunds and reliefs rests with assessees on whom it is imposed by law, officers should :— 


    (a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other;


    (b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs.


    4. Public Relations Officers have been appointed at important centres, but by the very nature of their duties, their field of activity is bound to be limited.


    The following examples (which are by no means exhaustive) indicate the attitude which officers should adopt :—


    (a) Sec. 17(1) : While dealing with the assessment of a non-resident assessee the officer should bring to his notice that he may exercise the option to pay tax on his Indian income with reference to his total world income if it is to his advantage.


    (b) Sec. 18(3), (3A), (3B) and (3D) : The officer should in every appropriate case bring to the assessee’s notice the possibility of obtaining a certificate authorising deduction of income-tax at a rate less than the maximum or deduction of super tax at a rate lower than the flat rate, as the case may be.


    (c) Secs. 25(3) and 25(4) : The mandatory relief about exemption from tax must be granted whether claimed or not; the other relief about substitution, if not time barred, must be brought to the notice of a taxpayer.


    (d) Sec. 26A : The benefit to be obtained by registration should be explained in appropriate cases. Where an application for registration presented by a firm is found defective, the officer should point out the defect to it and give it an opportunity to present a proper application.


    (e) Sec. 33A : Cases in which the ITO or the Asstt. Commissioner thinks that an assessment should be revised, must be brought to the notice of the CIT. (f) Sec. 35 : Mistakes should be rectified as soon as they are discovered without waiting for an assessee to point them out.


    (g) Sec. 60(2) : Cases where relief can properly be given under this sub-section should be reported to the Board.


    5. While officers should, when requested, freely advise assessees the way in which entries should be made in various forms, they should not themselves make any in them on their behalf. Where such advice is given, it should be clearly explained to them that they are responsible for the entries made in any form and that they cannot be allowed to plead that they were made under official instructions. This equally applies to the Public Relation Officers.


    6. The intention of this circular is not that tax due should not be charged or that any favour should be shown to anybody in the matter of assessment, or that where investigations are called for, they should not be made. Whatever the legitimate tax it must be assessed and must be collected. The purpose of this circular is merely to emphasise that we should not take advantage of an assessee’s ignorance to collect more tax out of him than is legitimately due from him.


    Circular No. 20-D (XXII-22) Dated 20.08.1968


    Interest on delayed refunds—Period of its allowance


    Under the terms of section 243 (now replaced by section 244A), interest is payable by the Government where the refund is not granted within three months from the date on which the total income is determined, and the interest where payable is to be calculated at the specified rate, from the date immediately following the expiry of the three months aforesaid to the date of the order granting the refund. From this it is clear that the date of the order granting the refund is the date of the refund voucher itself. The view stated to have been taken by some ITOs, that the date of the assessment order is to be taken as the "date of the order granting the refund" is not correct. Thus, in cases where interest is payable by the Central Government to assessees under s.243 of the Act, such interest is to be calculated up to the date of issue of the refund voucher.


    Circular No. 549 dated 31st October, 1989

    (Relevant Extracts Relevant for Section 244A)


    The provisions of section 214 relating to interest payable by the Government on the excess amount of advance tax paid by the assessee have been replaced, with effect from the assessment year 1989-90, by the provisions of a new section 244A by the Direct Tax Laws (Amendment) Act, 1989.


    Payment of interest by the department for delay in grant of refund due to the assessee

     

    11.1 The old provisions regarding payment of interest by the Department - The old provisions in the Income-tax Act, provided for payment of interest by the Department on refunds due to the assessees were contained in the following sections of the Act:

    (i) Section 214, relating to payment of interest to the assessee on the excess amount paid as advance tax.

    (ii) Section 243, relating to payment of interest to the assessee for delay in granting the refund after a claim for refund was made or after the refund was determined.

    (iii) Section 244, relating to payment of interest to the assessee for delay in granting refund as a result of appeal, etc.

     

    11.2 Insertion  of a new section 244A in lieu of sections 214, 243 and 244  - Under the provisions of section 214, interest was payable to the assessee on any excess advance tax paid by him in a financial year from the 1st day of April next following the said financial year to the date of regular assessment. In case the refund was not granted within three months from the end of the month in which the regular assessment was completed, section 243 provided for further payment of interest under section 244 interest was payable to the assessee for delay in payment of refund as a result of an order passed in appeal, etc., from the date following after the expiry of three months from the end of the month in which such order was passed to the date on which refund was granted. The rate of interest under all the three sections was 15 per cent per annum.

     

    11.3 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 on delay in the grant of refunds. The rate of interest has been increased from the earlier 15% per annum to 1.5% per month or part of a month comprised in the period of delay in the grant to 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.

     

    11.4 The provisions of the new section 244A - The provisions of the new section 224A are as under:

     

    (i) Sub-section (1) provides that where in pursuance of any order passed under this Act refund of any amount becomes due to the assessee, then

     

    (a) if the refund is out of any advance tax paid or tax deducted at source during the financial year immediately preceding the assessment year, interest shall be payable for the period starting from the 1st April of the assessment year and on the date of grant of the refund. No interest shall, however, be payable if the amount of refund is less than 10% of the tax determined on regular assessment.

     

    (b) if the refund is out of any tax, other than advance tax or tax deducted at source, or penalty, interest shall be payable for the period starting from the date of payment of such tax or penalty and ending on the date of the grant of the refund. (Refer to Example III in Para 11.8).

     

    The interest is to be calculated @ 1.5% “per month or part of a month” comprised in the period of delay for which the interest is payable. As already explained in para 10.11 ante, the meaning of this expression is that even where the delay is for part of a month, interest @ 1.5% will be charged.

     

    (ii) Sub-section (2) provides that for the purpose of computing the period of delay under sub-section (1), any period of delay attributable to the assessee shall be excluded. (Refer to Example II Para 11.8).

     

    (iii) Sub-section (3) provides for automatic revision of the amount of interest on refund where the amount of refund is varied as a result of an order of reassessment, rectification, appeal, revision or settlement mentioned in the sub-section.

     

    (iv) Sub-section (iv) provides that the provisions of this section shall apply to the assessment year 1989-90 and subsequent assessment years.

     

    11.5 Amendments in section 244A by the Amending Act, 1989 - The new section 244A inserted by the Amending Act, 1987 provided for calculation and payment of interest to the assessee only where the refund became due to him in pursuance of an order passed under the Act. It did not provide for payment of interest where refund became due to the assessee under the provisions of the new section 143(1) without passing an assessment order. The Amending Act, 1989, has, therefore, amended sub-section (1) of this section to provide for calculation and payment of interest to the assessee on refund becoming due to him in pursuance of total income determined under the provisions of the new section 11.4(i). (Refer Examples I and II in Para 11.8).

     

    11.6 The Amending Act, 1989, has further included reference to tax collected at source in the section consequent upon the insertion of section 206C of the Income-tax Act, by the Finance Act, 1988.

     

    11.7 The Amending Act, 1989 has also amended sub-section (3) of this section to include reference to the order passed under section 143(3) for the purposes of calculation of revised interest under this sub-section. The effect is that any interest granted on refund becoming due in pursuance of the provisions of section 143(1) will also be revised if the amount of refund is reduced as a result of an assessment order under section 143(3) passed in the case.

     

    11.8 Examples to illustrate the calculation of interest under section 244A - The calculation of interest under the provisions of section 244A may be illustrated by means of the following Examples:

     

    Example 1: Grant of refund under section 143(1) out of advance tax paid or tax deducted at source - Interest payable by the department under section 244A:-

     

    (i) Tax paid by way of advance tax /TDS before 31-3-1989

    Rs. 3,00,000

    (ii) Tax due as per return of income for the asessment year 1989-90 filed on 31-8-1989, the due date Rs. 2,40,000

     

    (iii) Refund due to the assessee

    Rs. 60,000

    (iv) Date of actual refund granted under section 143(1)

    10-10-1989

    *(v) Interest payable by the Department @ 1.5% per month for 6 months and 10 days (1-4-1989 to 10-10-1989), i.e., for 7 months - @ 10.5% on Rs. 60,000

    Rs. 6,300

     

    *Note: Interest is to be paid for full month even where the delay is for part of a month.

     

    Example II: Grant of refund under section 143(1) out of advance tax paid or tax deducted at source in a case where the return is filed late by the assessee - interest payable by the Department under section 244A :

     

    (i) Tax paid by way of advance tax/TDS before 31-3-1989

    Rs. 3,00,000

    (ii) Tax due as per return of income for assessment year 1989-90

    Rs. 2,00,000

    (iii) Due date for filing the return of income

    31-8-1989

    (iv) Date of filing the return

    31-2-1989

    (v) Delay in filing the return

    4 months

    (vi) Refund due to the assessee

    Rs. 1,00,000

    (vii) Date of actual refund granted under section 143(1)

    31-1-1990

    *(VIII) Interest payable by the Department @ 1.5% per month for six months (i.e., 10 months comprised in the period 1-4-1989 - 31-1-1990 minus 4 months of delay in filing the return) i.e., @ 9% on Rs. 1,00,000

    Rs. 9,000

     

    *Note: Under the provisions of section 244A(2) interest shall not be payable, by the Government for the period of delay attributable to the assessee. Since in the present case delay of 4 months in filing the return is attributable to the assessee, interest shall not be payable to him for this period.

     

    Example III : Grant of refund as a result of appellate order - Interest payable by the Department under section 244A :

     

    (i) Tax due as per return of income for the assessment year 1989-90 filed on 31-10-1989, the due date

     

    Rs. 3,00,000

     

    *(ii) The tax of Rs. 3,00,000 due as per return has been paid by the assessee as follows:-

     

     

    By way of advance tax by 31-3-1989

    Rs. 2,80,000

     

    Under section 140A on 31-10-1989

    Rs. 20,000

    Rs. 3,00,000

    (iii) Tax determined on completion of regular assessment under section 143(3) on 31-3-1990

     

    Rs. 4,00,000

    (iv) Date of payment of further demand of Rs. 1,00,000 [col. (iii) minus (ii)]

    1-5-1990

     

    (v) Tax determined as a result to appellate order under section 250 on 30-9-1990

    Rs. 3,20,000

     

    (vi) Refund due as a result of appeal

    Rs. 80,000

     

    (vii) Date of grant of actual refund

    31-10-1990

     

    (viii) Interest payable by the Department @ 1.5% per month for 6 months (1-5-1990-31-10-1990), i.e., @ Rs. 9% on 80,000

     

    Rs. 7,200

     

    *Notes : Since the tax has been correctly paid and the return has been filed in time neither any tax or interest is due from the assessee nor any refund is due to him. Therefore, no action under section 143(1) is necessary.

     

    11.9 These amendments come into force with effect from the 1st day of April, 1989. As already pointed out earlier, the provisions of the new section 244A shall apply to the assessment 1989-90 and subsequent assessment years, while the provisions of sections 214, 243 and 244, which have been replaced by the provisions of new sections 244A, shall cease to apply to the assessment year 1989-90 and onwards.

     

    Clarifications related to ‘month or part thereof’

     

    10.11 Meaning of the expression “month or part of a month” used in sections 234A and 234B - Under the provisions of sections 234A and 234B, interest is charged at 2% per month or part of a month. This means that even where the delay is for part of a month say even for 1 day, interest at 2% will be charged. Thus, for example, where a return of income, which is due on 31-8-1989, is filed on 9-11-1989, interest shall be charged at 2% per month for three months (i.e., for the months of September, October and 9 days forming part of the month of November). In other words, interest chargeable in such  a case will be at 6%.


    12.7 The use of the expression "part of a month" in the sub-section means that even where the delay is for part of  a month, say even 1 day, interest shall be charged at 1.5%. [Para 12.7 is in relation to section 220(2)]


    CBDT’s Instruction No. 2/2007 dated 28-03-2007


    CBDT vide its Instruction No. 2/2007 dated 28th March 2007 has reminded all Assessing officers that while granting refund to the assessees, care should be taken to ensure that any interest payable under section 244A on the amount of refund due should be granted simultaneously with the grant of refund and there should in no case any omission or delay in the grant of such interest. Failure to do so will be viewed adversely by the board and the officer concerned will be held personally accountable, inviting appropriate action from the board.


    CBDT’s Instruction No. 7/2013 dated 15.07.2013


    CBDT vide Instruction No. 7/2013 dated 15.07.2013 directed that in all the cases interest under section 244A shall be paid to the assessee when the assessee is not at fault.


    This direction was issued by the CBDT subsequent to the decision of Hon’ble Delhi High Court in case of Court On Its Own Motion vs. UOI and Others in W.P.(C) 2659/2012 dated 14.03.2013.


    Para 31 and Para 32 of the Judgment in the above-mentioned case is reiterated in the Instruction of 2013 which read as follows-


    “31. In the affidavit filed on 29th January, 2013, the respondents have stated as under:- 


    ‘Where an assessee makes a mistake in the claim 0f TDS in the e-return and the return is processed and a demand is raised and subsequently, the assessee rectifies the mistake in the claim and files an online rectification application, the same is processed and on any excess TDS is refunded, the interest under section 244A is granted as per the I.T. Act after excluding the period of delay attributable to the assessee in terms of sub-section 2 of section 244A of the Income Tax Act, 1961″ 


    32. An assessee can be certainly denied interest if delay is attributable to him in terms of sub-section (2) to Section 244A, However, when the delay is not attributable to the assessee but due to the fault of the Revenue, then interest should be paid under the said Section. False or wrong uploading of past arrears and failure to follow the mandate before adjustment is made under Section 245 of the Act, cannot be attributed and treated as fault of the assessee. These are lapses on the part of the Assessing Officer i.e. the Revenue. Interest cannot be denied to the assessees when the twin conditions are satisfied and in favour of the assessee. However, even in such cases Assessing Officer may deny interest for reasons to be recorded in writing if the assessee was in fault and responsible for the delay. This is the fourth mandamus which we have issued.”



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