THE issue before the HC is - Whether an assessee is entitled to claim interest u/s 244A on the excess self-assessment tax paid u/s 140A. NO is the answer.
Facts of the case
The assessee is a Government of India undertaking established under the Ministry of Petroleum and Natural Gases, primarily engaged in providing engineering and technical consultancy services and execution of contracts on turn-key basis, predominantly in the oil/gas/hydrocarbon sectors. The assessee had filed its return for A.Y 2006-2007 declaring income of Rs.2,40,13,53,030/-, subsequently followed by revised return declaring income of Rs.2,43,29,60,025/-. The AO selected the case of assessee for scrutiny and issued notice u/s 143(2) r/w/s 142(1). During assessment, the AO noticed that the assessee had claimed dividend income amounting to Rs.2 Crores as exempt u/s 10(33) which, according to the AO, was not justified. Eventually, the AO held that an amount of Rs.69,00,000/- required to be disallowed on pro rata basis u/s 14A r/w Rule 8D. On appeal, the CIT(A) restricted the disallowance to Rs.25,000/-. It was in the course of hearing before the CIT(A) that the assessee raised the question of the AO not having allowed interest u/s 244A on the amount in excess deposited as self-assessment tax. After hearing the objections, the CIT(A) allowed this contention of assessee. On further appeal, the Tribunal after noting the submission that according to the intimation u/s 143(1), the assessee was eligible for refund of Rs.7,81,23,227/-, it was held that the assessee was held to be entitled to interest as granted by CIT(A) on the excess self-assessment tax paid u/s 140A in terms of Section 244A.
Having heard the parties, the High Court held that,
++ section 207 declares generally the liability of the assessee to pay "in advance" the tax during the financial year in respect of the total income "which would be chargeable to tax for the assessment year immediately following". For proper understanding of the method of computation of advance tax, it is necessary also to take into account the provision contained in Section 210, since it, inter alia, provides guidance to the assessee to calculate and pay the advance tax "of his own accord". It is clear from the bare reading of the above provisions that whether for purposes of computing the advance tax liability or for that matter the calculation of self-assessment tax, the assessee is given the liberty to make the estimation "of his own accord". The Revenue expects proper declaration on the basis of which the liability would be eventually determined. After all, the necessary information or data is available first to the assessee. Since the advance tax is paid on quarterly basis, the assessee is in a position to revise the calculations as the financial year progresses. He may increase or decrease the amount to be paid as the quarterly installment of advance tax corresponding to the increase or reduction of the income generated. A person who has already been assessed to income tax in the previous year(s) has the advantage of the benchmark of such earlier periods. The AO, on the other hand, is also given the authority by the law, by virtue of Section 210(3) or (4), to keep a tab on the payment(s) of advance tax having regard, inter alia, of the income reported in the preceding years and require deposit of the advance tax to the optimum extent. Notwithstanding this authority of the AO, for purposes of advance tax, the assessee retains his discretion to compute his taxable income and tax liability of his own estimation and, thus, may deposit the advance tax only to the extent he concedes, thereby ignoring the order of the AO as communicated in terms of Section 210(3) or (4);
++ unlike the liability towards advance tax u/s 207, there is no specific provision in the Income Tax Act for guiding the assessee in computing his liability towards "self-assessment" in terms of Section 140A. But since, in the scheme of things, the liability towards "advance tax" would come up ahead of the stage when the assessee is required to compute the tax payable finally with the return, described as self-assessment, it is clear that having paid the quarterly installment of advance tax and reviewed the estimate of current income at each such stage, the assessee would be equipped with better information and data required to be taken into account for calculating "current income" and, thus, in a better position to arrive at a more accurate estimate and compute the tax liability when time comes for submitting the return u/s 139 and calculating the self-assessment tax u/s 140A. The declaration of the taxable income or tax liability in the return is subject to order of assessment required to be passed by the AO, amongst others, u/s 143. There is no finality given to the order of assessment at the hands of the AO. There are provisions for rectification, appeal, etc. There are also provisions for dealing with income that escapes assessment. When the liability is determined, whether in terms of the assessment order or in accordance with the order passed by the appellate authorities, or superior forums, if any tax, interest, penalty, fine etc. remain due to the Revenue, the AO is authorized by Section 156 to require the assessee to pay such sum by serving a notice (or revised notice) of demand. The notice of demand under Section 156, if issued before the assessment becomes final and binding, is subject to upward revision (or refund) in due course, in accordance with the assessment that comes to be finally made. The stage for refund comes when the assessment attains finality. The liability of the Revenue to pay interest on refund of excess amount paid towards Income Tax Act by the assessee, in terms of Section 244A requires to be examined in above light;
++ noticeably, for purposes of calculating the liability of the Revenue towards interest on the amount being refunded u/s 244A(1)(b), the beginning point is prescribed as the "date of payment of tax (or penalty)". This expression is defined in the explanation appended to the clause to be indicative of the date of payment of the amount "specified" in the demand notice u/s 156. Thus, the legislation makes it clear that for the residuary clause, the amount paid by the assessee (from which refund is to be made) must have been deposited pursuant to demand notice issued by the assessing authority. To put it conversely, the clause would not apply, by virtue of the explanation, in case the excess amount (being refunded) has been paid by the assessee otherwise than in compliance with demand notice or voluntarily. This is the import and effect of the explanation if the language employed thereof is read, understood and construed in its natural and ordinary sense. Since the words used are clear, plain and unambiguous, there is no scope for beneficent construction since it would lead to re-legislation, which is impermissible. The observations of the Supreme Court in Sandvik Asia Limited is required to infer that there is no liability of the Revenue to pay tax on refund beyond the liability created by the statutory provisions. In the case of Union of India v. Tata Chemicals, the collection of the tax (through deductor) was found to be illegal, thus giving rise to the liability to pay interest on the refunded amount. This Court thus, conclude that there cannot be a general rule that whenever a refund of income tax paid in excess is to be made, the Revenue must necessarily pay interest on the refunded amount. The letter and spirit of the law on the subject is that the party which committed the error in proper calculation or delay in proper assessment must bear the burden. If the excess amount is paid due to erroneous assessment by the Revenue, having exacted such burden wrongfully and inequitably on the assessee and having retained the excess amount thus received, the reimbursement must be accompanied by payment of interest at the statutorily prescribed rate. Conversely, if the assessee is to blamed for the miscalculation or for delay or, for that matter, want of claim of refund, the Revenue does not owe any interest even if the excess payment of tax is liable to be refunded;
++ in the case at hand, the Revenue had not made the excessive assessment so as to impel the deposit of self-assessment tax in excess, and the assessee did not make a claim for refund in the return. Such claim appears to have come later. As clarified by the Supreme Court in the case of Commissioner of Income Tax, Gujarat v. Gujarat Fluoro Chemicals, there is no general principle obliging the Revenue to pay interest on all sums wrongfully retained. It is trite that a fiscal statute is to be construed strictly. The claim of interest on refund of income tax has to be pegged on the statutory clauses only. For the foregoing reasons, the substantial question of law is answered in favour of the Revenue. In absence of explanation as to how the assessee erred in calculation of self-assessment tax, there being no allegation that such excess deposit was pursuant to demand by the Revenue, the claim for interest on excess payment voluntarily made cannot be sustained. Therefore, the impugned order passed by ITAT directing the AO to pay interest to the assessee on the refunded amount is set aside.
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