ITAT explains Interest on Income Tax Refund under section 244A
The provisions of Section 244A pertains to Interest on refunds under the Income Tax Act. According to Section 244A(1), where refund of any amount becomes due to the assessee under this Act, he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner:-
- where the refund is out of any tax [collected at source under section 206C] paid by way of advance tax or treated as paid under section 199, during the financial year immediately preceding the AY, such interest shall be calculated at 0.5% for every month or part of a month comprised in the period from the 1st day of April of the AY to the date on which the refund is granted. No interest shall be payable if the amount of refund is less than 10% of the tax as determined on regular assessment
- in any other case, such interest shall be calculated at 0.5% 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
According to Section 244A(2), if the proceedings resulting in the refund are delayed for reasons attributable to the assessee, whether wholly or in part, the period of the delay so attributable to him shall be excluded from the period for which interest is payable, and where any question arises as to the period to be excluded, it shall be decided by the Chief Commissioner or Commissioner whose decision thereon shall be final.
According to Section 244A(3), where, as a result of an order under section 143(3), section 144, section 147, section 154, section 155, section 250, section 254, section 260, section 262, section 263, section 264 or an order of the Settlement Commission under section 245D(4), 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, and in a case where the interest is reduced, the AO 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.
Let us refer to the case of Maruti Suzuki India Ltd Vs CIT (Appeals) (ITAT Delhi) where the issue under consideration was that AO did not allow interest u/s 244A(1)(a) on the grounds that the refund was less than 10% of the tax determined u/s 254.
Facts of the Case:-
- The assessee was entitled to total income tax refund of Rs.201,37,93,163 (Rs.14,59,79,228 + Rs. 186,78,13,935).
- However, the Assessing Officer (AO) omitted to calculate and allow interest under section 244A on the amount of refund of Rs.14,59,79,228
- The tax paid by the assessee of Rs.186.78 crore against the demand raised by the revenue by the way of assessment was refunded by the assessee along with interest.
- The AO did not allow interest u/s 244A(1)(a) on the amount of Rs.14.59 crores on the grounds that the refund was less than 10% of the tax determined u/s 254
- The CIT(A) confirmed the order of the AO on the grounds that, to give effect to the provisions of Section 244A(3), the assessee had to mandatorily cross the limitations imposed u/s 244A(1)(a).
Observations of ITAT on difference between clause (a) and (b) of Section 244A
- Section 244A(1)(a) deals with interest where refund is out of TDS or by way of advance tax.
- The proviso under sub-Section (a) has to be read with regard to sub-Section (a) and applies to sub-Section (a) only. Sub-Section (b) does not portray any such condition.
- Hence, it has to be read that the provision restricts the interest on amount, if the refund is less than 10% of the tax as determined and is applicable only to the advance tax paid u/s 206 or u/s 115WJ.
- The CIT(A) treated the entire amount of Rs.14.60 crore for the purpose of Section 244A(1)(a) and treated it as prepaid taxes. This is exactly where the CIT(A) read the provisions wrongly.
- The prepaid taxes consist of TDS, advance tax. The provisions of self-assessment tax are governed by Section 140A which was not covered by the provision u/s 244A(1)(a).
- Self-assessment tax which is payable on the basis of return does not constitute part of prepaid taxes.
- It is clear from the provision of Section 244A that the self-assessment tax does not form a part of the restriction as self-assessment tax falls under Section 244A(1)(b).
- The starting of Section 244A(1)(b), reads “in any other case”. Here “in any other case” signifies refund out of any tax paid, other than u/s 115WJ or collected at source u/s 206 or paid by the way of advance tax which treated as paid u/s 199 which have been duly mentioned u/s 244A(1)(a).
- The difference between sub-Section (a) and (b) is with regard to the method of computation of interest on the refund.
Observations of ITAT on the contention of the assessee that provisions of Section 244A(3) were applicable and hence Section 244A(1)(a) was not applicable to the instant case
- The assessee argued that the provisions of Section 244A(3) applied to the cases where the refund arose out of the order of the Tribunal but not out of the Section 143(1) or 143(3) and hence, the provisions of Section 244A(1)(a) were not applicable to the instant case.
- Section 244A(3) states the procedure to be followed while computing the interest in accordance with the Section 244A(1).
- The sub-Section (3) gives equal treatment to the refund arising out of the orders namely, order u/s 115WE(3), order u/s 115WF, order u/s 115WG, order u/s 143(3), order u/s 144, order u/s 147, order u/s 155, order u/s 250, order u/s 254, order u/s 260, order u/s 262, order u/s 263, order u/s 264, order u/s 245D(4).
- It directs the revenue authorities to recompute the interest payable and to notify the assessee with a demand notice in case there is any increase in the interest payable by the assessee owing to such order.
- This is a procedural section to give effect to the orders passed by various authorities by the revenue.
- By this section, the revenue is directed to re-compute the tax due consequent to the passing of any further orders which will have an effect on the tax determined u/s 143(1) in the case of non-scrutiny cases and u/s 143(3) in the case of regular assessment. Thus, Section 244A(3) is a re-computational purvey under the Income Tax Act.
- Section 244A(1)(a) deals with the refund determined u/s 143(1) or Section 143(3).
- The orders u/s 147, Sec. 154, Sec. 155 or Sec. 254, Sec. 255, Sec. 260, Sec.262, Sec. 263, Sec. 264, Sec. 245D(4) effectively directed to recompute the refund determined u/s 143(1) or Sec. 143(3) and to pre-determine the quantum of the refund of the amount due afresh.
- Thus after receipt of the order under these sections, the tax payable/refund payable would be re-computed as provided u/s 244A(1).
- Consequently, the interest is determined as provided in the clause (a) i.e. from the first day of April and/or clause (b) i.e. from the date of payment of tax to Section 244A(1) as applicable. The sub-Section (3) doesn’t in any way nullify the provision below clause (a) to Section 244A (1).
According to the above discussion it can be concluded that:-
- When refund is of any advance tax paid or TDS or TCS – The interest is payable at the rate of 0.5% per month or part of the month of refund.
- No interest is payable if the excess payment is less than 10% of the tax determined on regular assessment or u/s 143(1).
- When refund is of tax other than advance tax paid or TDS or TCS, the interest is payable at the rate of 0.5% per month or part of the month of refund.
In the instant case, the question before ITAT was whether no interest shall be payable on the amount of refund is less than 10% tax determined, if the refund is out of tax paid u/s 206/207/199.
- Vide the provisions to Section 244A(1)(a), the legislature clearly laid down that in case the refund arose out of the prepaid taxes such as TCS/TDS/Advance Tax is less than 10% of the tax no interest is allowable. The statute is to be read as a whole in its content. It is unambiguous, straight, effective and workable.
- If the language of the statute is clear and unambiguous, words must be understood in their plain meaning. The wordings of the Act must be construed according to its literal and grammatical meaning, whatever the result may be.
- It is not permissible to construe any provision of a statute, much less a taxing provision, by reading into it more words than its contains.
- Hence, ITAT held that the proviso to Clause (a) of Sub-Section (1) of Section 244A was applicable and had to be considered for computational purpose of the interest computable for the refund payable u/s 244A(1)(a).
The next question before the ITAT was whether interest was payable on the self-assessment tax paid by the assessee or not
- ITAT referred the judgment of Jurisdictional High Court in the case of CIT Vs Sutlej Industries Ltd wherein the High Court held that where self-assessment tax paid by the assessee u/s 140A is refunded, the assessee should be entitled to interest thereon. The High Court held that the self-assessment tax falls within the expression “refund of any amount”. The computation of simple interest on self-assessment tax has to be in terms of Section 244A(1)(b), i.e., from the date of payment of such amount up to the date on which refund is actually granted.
- Even otherwise, it is a law that wherever the assessee was entitled to refund, there was a statutory liability on the Revenue is to pay the interest on such refund on general principles.
- The High Court of Kolkata in the case of Birla Corporation Ltd. held that clause (1)(b) of Section 244A is residual in nature which prescribes interest on refund from the date of payment of tax in cases which are not covered by Section 244A(1)(a). Necessarily, it will cover interest on refund of excess self-assessment tax paid by the assessee. The proviso to section 244A (1)(a) would have no application as the tax paid was self-assessment tax u/s 140A. Hence according to mandate of section 244A(1)(b), interest is payable on refund of excess self assessment tax, from the date of payment of such tax to the date when the refund is granted.
- Similarly, the High Court of Bombay in the case of Stockholding Corporation of India Vs. CIT elaborately dealt with the question of interest on refund of excess self assessment tax and held that where the self-assessment tax paid by the assessee u/s. 140A is refunded, the assessee should be, entitled to interest thereon since the self assessment tax falls within the expression “refund of any amount”.
- Section 244A does not deny payment of interest in case of refund of amount paid under Section 140A. On the contrary, Clause (b) being a residuary clause necessarily includes payment made u/s. 140A.
- Since, there is no proviso attached to sub-Clause (b), the restriction of 10% is not applicable for calculation of interest for the refund arising out of payment of self-assessment tax.
- The self-assessment tax under the ambit of tax u/s 244A(1)(b). The assessee is eligible for interest on the complete amount of the refund arising out of self-assessment tax. Whatever the money received by the department in excess is ought to be refunded ex-aequo et bono.
In conclusion the ITAT held that:-
- Where refund of any amount becomes due denotes refund arising out of
- advance tax u/s 207
- TCS u/s 206
- TDS u/s 195
- All credits u/s 199
- Taxes paid as specified u/s 156 and
- Self-assessment tax
- Before 01.06.2016, no interest would be paid if the amount of refund is less than 10% of the taxes determined in case the refund is out of the taxes paid other than self-assessment tax.
- Before 01.06.2016, in the case of refund arising out of self-assessment tax, interest would be calculated on the entire self-assessment tax refunded from the date of payment of S.A. tax.
- After 01.06.2016, no interest would be paid if the amount of refund is less than 10% of the taxes determined whether it is u/s 140, u/s 156, u/s 195, u/s 199, u/s 206 and u/s 207.
- Where refund of “any amount” [244A(1)] due indicates the refund of taxes paid by the assessee.
- Where refund of “any amount” [244A(1)] is due, the assessee is entitled to simple interest. The simple interest would be calculated at the prescribed percentage after determining the refund due and paid along with the principle.
- Even, “a single day” should be considered as a part of the month for the purpose of computation of interest.
Therefore, the AO was directed to pay interest on the refund eligible in accordance with the proviso to Section 244A(1)(a) with regard to the advance tax paid. With regard to the self-assessment tax paid, ITAT held that the assessee was eligible for interest on the total amount of refund in accordance with provision of Section 244A(1)(b) as the restriction stated in proviso to Clause (a) to Section 244A(1) was not applicable to the case.