Whether amount payable by assessee u/s 140A, over and above shortfall arising after credit for TDS payment and advance tax, can be considered as tax before processing of return u/s 143(1) - NO: ITAT

THE issue before the Bench is - Whether the amount payable by the assessee u/s 140A, over and above the shortfall arising after the credit for payment of TDS and advance tax, can be considered as tax before the processing of return u/s 143(1). NO is the answer.

Facts of the case

The assessee company has wrongly mentioned 'excess' in place of 'shortfall' of advance tax & TDS paid in the computation of income. This had resulted in less payment of Self assessment tax. Both as per Revenue as well as the assessee, the Apex court in the case of Modi Industries Ltd. vs. CIT 2002-TIOL-446-SC-IT explained that there was no right to get interest except as provided by the statute. The same stands reiterated, more recently, in CIT vs. Gujarat Fluoro Chemicals 2013-TIOL-47-SC-IT-LB, again by its larger bench, explaining its decision in Sandvik Asia Ltd. v. CIT 2006-TIOL-07-SC-IT as being rendered in the peculiar facts of the case, without impacting the settled law in the matter; where it was held that the Legislature by the Act No. 4 of 1988 (w.e.f. 01.04.1989) has inserted Section 244A 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 Apex Court in Union of India vs. Tata Chemicals Ltd. 2014-TIOL-27-SC-IT, relied upon in Stockholding Corporation of India, clarified that the residuary clause (section 244A(1)(b)) shall cover all payments of tax, so that whenever tax was found to have been paid in excess of the amount which the assessee was obliged or otherwise required to pay under any provision of the Act, he shall be entitled to interest, being compensatory, there-under. However, the decision in Gujarat Fluoro Chemicals was also rendered in the context of s. 244A, even as the propositions of law stated in Modi Industries Ltd. would equally apply to refund of tax under the Act. The words of a Statute must prima facie be given their ordinary meaning. When the words are clear, plain and unambiguous, then the Courts are bound to give effect to that meaning irrespective of the consequences. Further, efforts should be made to give meaning to each and every word used by the Legislature and it is not a sound principle of construction to brush aside words in a Statute as being inapposite surpluses, if they can have proper application in circumstances conceivable within the contemplation of the Statute. Reference for the purpose be made to Tata Chemicals Ltd. Also refer, CIT v. Calcutta Knitwears 2014-TIOL-30-SC-IT.

In the present case, the break-up of the prepaid tax of Rs.2057.84 lacs showed the volume of the tax payable as well as the shortfall in advance tax (Rs.4.02 lacs), which clearly suggested no interest u/s. 234B being leviable, which was only where the advance tax fell short of 90% of the assessed tax. The payment of the excess Rs.260.98 lacs (i.e., Rs.265 lacs - Rs.4.02 lacs), adjusted downward for the amount of interest, if any, u/s.234B, cannot be regarded as payment of tax, much less as tax paid (or required to be) by way of self-assessment, or self assessment tax by definition. Tax stands clearly defined u/s. 2(43) to mean income tax chargeable under the provisions of the Act. The payment of advance tax was on the basis of an estimation of current income (section 209), which provision, as well as s. 210, stood noted in Engineers India Ltd., which could therefore be in excess, i.e., without attracting the disqualification of being advance tax. Without doubt, AO can u/s 210 call for the estimation of the assessee's income for the year, as also the tax for the immediately preceding year, and where found to be in excess of the amount payable in terms of the clear provision, claim the same to be not advance tax. In fact, section 4(2), clearly brings the tax deducted at source or paid in advance within the purview of section 4(1). But for the said provision, the Central Act providing for the charge of income tax and, at a prescribed rate, being applicable from an assessment year, the tax charged could not be recovered during the relevant previous year. The argument shall, therefore, not hold good for prepaid taxes in general, the interest on refund of which is governed by section 244A(1)(a). The payment u/s.140A is to be made after the close of the year, on the basis of the assessee's own return for the year, as prepared. The payment made in excess of that required to be paid u/s.140A cannot therefore be regarded as payment there-under and, thus, as payment of self-assessment tax. The same does not fall under any other provision as well. Being not chargeable u/s. 4(1), it cannot be regarded as payment of tax, which cannot be so merely for the reason that the assessee had chosen to pay it. The same simply represents the deposit, made on an ad hoc basis, without any basis in fact or in law.

It was also pointed out that as per law refund can be granted only on tax (or penalty), or even of interest, i.e., of a payment made under any provision of the Act. The said excess assumes the character of tax upon processing of the assessee's return or on making the assessment for the relevant year. It may be appreciated that prior to this point in time, the A.O. had no power to refund the amount. It was only on the processing of the return of income, mandatory in all cases, setting off the said payment against the assessee's tax liability for the year, i.e., by regarding it as paid toward tax, that the same assumes the character of a tax paid, entitled to refund u/s.143(1) r/w s. 237. Even so, it would be tax paid on processing (or assessment), and not as self assessment tax. Reference in this regard may be made to the decision in the case of Modi Industries Ltd. It was explained therein that once the amount of advance tax was treated as payment of tax in respect of income of the relevant previous year and credit as such for the amount has been given in the assessment order, the amount looses the character of advance tax, and becomes income tax in respect of income for the year. The Apex Court clarified this while analysing the interest allowed u/s.214 i.e., on refund of advance-tax, which was, as in the case of 244A, from the first day of the relevant assessment year, to the date of the assessment order. Reference was also made to illustrate the manner whereby an amount paid changes its character on assessment, i.e., on being allowed credit against the tax on income for the relevant previous year. The amount of excess, paid, thus, de hors any provision of law, would, nevertheless, come to be regarded as toward tax on the adjustment afore-said. The Intimation u/s.143(1) determining the amount payable was deemed notice of demand u/s.156, vide proviso thereto.

Prior to the processing/assessment, the A.O. was not empowered to take cognizance of this amount, much less refund it. In fact, even if therefore regarded as payment of tax from the date of payment of sum, i.e., in excess of that payable on the basis of the return, the delay in its refund, i.e., up to the date of processing/assessment, was attributable to the assessee and, as such, no interest would stand to be allowed for the period commencing from the date of payment to the date of adjustment as income tax in respect of income for the relevant previous year. This, then, provides the second, alternate reason for allowing interest on the excess payment (of Rs.2.61 crores) only from the date of processing of the payment of the return, and not from the date of actual payment. Further, the date of payment is to be given the meaning specified under the Act, and cannot, in view thereof, be read de hors the same, i.e., giving its plain meaning. When the statute gives a particular meaning to a particular set of words, interpretation has to be made accordingly. The apex court in West Bengal State Warehousing Corporation vs. Indrapuri Studio Pvt. Ltd. (in Civil Appeal No. 3865 of 2006 dated 19.10.2010) held that the use of the word 'means' in a definition signifies a hard and fast definition.

Having heard the matter, the Tribunal held that,

++ the Apex Court as per its larger bench decisions in Modi Industries Ltd. and Gujarat Fluoro Chemicals settled that there is no right to get interest of refund except as provided by the statute. The proposition of the interest being exigible on any amount paid, irrespective of either any obligation to pay or even its character under the Act, and from the date of its payment (i.e., except in the case of prepaid tax), cannot, in view thereof, be countenanced. Section 244A covers the allowance of interest on refund arising on payment of tax or penalty under the Act, and is a separate code in itself, providing for both the right to interest as well as the manner of its computation, including the resolution of any dispute qua the determination of the issue of the attribution of the delay, if any, in the grant of refund. The provision is to read in terms of its clear language, albeit holistically, following the cardinal principles of the interpretation of statutes, as clarified by the apex court in, inter alia, Tata Chemicals Ltd. Words assigned a particular meaning shall have to be interpreted strictly. The tax refund is, by definition, refund of tax paid under whatsoever provision in excess of the tax liability under the Act, as finally determined (Tata Chemicals Ltd.). The amount, however, ought to be paid by way of tax, in discharge of an obligation cast or required to be paid under any provision of law. Interest, though compensatory, may not necessarily follow for any excess payment and, further, has to be only of excess tax paid to the Revenue, for the period provided by the specific provision of law. The same can supply the termini points, which could either be actual or artificial. For prepaid taxes, it is, irrespective of the date of payment, the first day of the relevant AY. In all other cases, it is the date of payment of tax as provided for, i.e., the date of payment in excess of the amount thereof as specified in the notice of demand. The same is to be given a strict meaning. As such, it refers to the actual date of payment provided that what is paid is tax. As a natural corollary, it is the date on which the amount assumes the character of tax;

++ where an amount is paid with reference to or in violation of the provision, it cannot be said to be paid there-under. Section 140A requires payment of tax on the basis of the return, where-under only the assessee is to prefer his claims under the Act. The same, thus, contemplates an assessment by the assessee of its tax liability under the Act, as crystallized per the return finalized, i.e., for filing under the Act, paying the shortfall there-under, if any, along with the interest to date. How could it, even where not unambiguously worded, be otherwise, i.e., follow as it does the scheme of the Act. Any amount paid over and above the said shortfall cannot be regarded as tax, which, by definition, is that chargeable under the Act. [ss.2(43) r/w s. 4]. To regard any amount deposited as self assessment tax would be to do violence to the clear language of the provision of the Act, as well as its scheme. The said case excess, however, on being allowed credit for against the tax payable, assumes the character of tax, i.e., upon the processing of the return for the relevant year, filed subsequently by the assessee, which constitutes a notice of demand u/s.156, vide proviso thereto. Prior thereto, AO cannot take cognizance thereof, much less refund it. This, then, is the earliest point of time at which such excess can be regarded as payment of tax, exigible to refund u/s. 143(1) r/w s. 237. Not so regarding would make the machinery unworkable and prejudicial to the assessee. The assessee shall, therefore, be entitled to refund from this date to that of the grant of the refund. The amount cannot be regarded as payment of tax at any point of time earlier to the date of credit referred to at para (g) above, i.e., prior to the processing of the return of income resulting in the refund. Even otherwise, the delay in the grant of refund, i.e., for the intervening period between the date of payment and date of processing of return, is to be necessarily ascribed to the assessee, disentitling him for the interest for the said period. As such, even regarding it as payment of tax from inception, i.e., for the sake of argument, would be of little moment. Our decision is consistent with the said law as explained by SC as per its decisions referred to earlier and, further, also the judgment by the jurisdictional HC in Stockholding Corporation of India. The latter, in ratio, decides the issue of grant of interest u/s.244A on the payment of self assessment tax, and from the date of its payment. The interest being allowed in the present case, i.e., on the excess amount paid with reference to the return, is only tax and not of self assessment tax, i.e., paid on self assessment on the basis of the return, so that it would not be from the anterior in time to it being regarded as tax;

++ we are fortified in our stand by the decision in Engineers India Ltd., rendered after considering other decisions in the matter. The Court, firstly, observes with reference to Gujarat Fluoro Chemicals that there was no liability on the Revenue to pay interest on refund beyond the liability created by the statutory provisions, noting that in Tata Chemicals Ltd. the collection of tax was subsequently found illegal (para 33). As such, there was no general rule that whenever a refund of income tax paid in excess is to be made, the Revenue must necessarily pay interest on the refund amount. It is the Revenue or the assessee, whoever is responsible for the excess payment, which must bear the interest burden or, as the case may be, loss of interest (para 34). The assessee having paid to in excess, as found per Intimation u/s. 143(1), was not entitled to interest thereon or prior thereto;

++ we have, it may be noted, applying the decision in Modi Industries Ltd, stated that in-as-much as the credit is allowed for such payment, and only rightly so, against tax payable on the basis of the return, i.e., upon its processing u/s. 143(1), the same assumes the character of tax on such adjustment, so that interest shall arise to the assessee from that date up to the date of grant of refund. The jurisdictional High Court also observed this at para 8 of its Judgment in Stockholding Corporation of India, stating that the A.O. passed the assessment order on 31.12.1996, accepting the entire amount paid as self assessment tax as payment of tax. In the facts of the case, the refund to the extent of Rs.260.98 lacs, adjusted for the amount of interest u/s.234B, if any, up to 31.05.1994, shall arise only subsequent to the date of processing u/s.143(1), i.e., up to the date of grant of refund. In-as-much as the law does not contemplate grant of refund exclusive of interest, the same must necessarily be worked out at gross of interest u/s.244A up to the date of refund. The shortfall, if any, of the refund amount with reference to the amount so computed, would, therefore, have to be apportioned between the principal (tax) and interest amounts, so that interest u/s.244A shall arise on the un-refunded tax, while no interest u/s.244A is exigible under the Act on the unpaid interest there-under. The balance tax refund of Rs.20.98 lacs (i.e., Rs.2061.86 lacs - Rs.2040.88 lacs), would be governed by s. 244A(1)(a). We decide accordingly. In the result, the assessee's appeal is allowed on the afore-said terms.